SEC: The Securities and Exchange Commission has put one in the net. The $550 million settlement with Goldman Sachs hardly signals the start of a regulatory reign of terror. But Wall Street's top cop badly needed a goal of any sort, even one that just dribbled over the line. More important, the lawsuit gave a big assist to financial reform.
For Goldman's most rabid critics, the SEC settlement falls far short of justice for the "vampire squid". The bank has been neither crushed nor crippled. The penalty may be the largest the regulator has ever levied against a financial institution, but it amounts to just 3 per cent of Goldman's $16.2 billion 2009 bonus pool and just 16 per cent of first-quarter earnings.
Other firms have suffered far worse. In 1988, junk-bond king Drexel Burnham Lambert pleaded guilty to six felony counts and paid a
$650 million government fine. Adjusted for inflation, that works out to $1.2 billion in today's dollars. And, of course, Goldman keeps its top executives. Still, the result is a big first step in the long walk back to credibility for the SEC. The government bureaucrats tangled with Wall Street's elite and the financial geniuses departed with their pockets a fair bit lighter. The case will make for better headlines than the SEC's failure to catch Bernie Madoff or the bungled case against Bank of America regarding bonuses paid to Merrill Lynch employees. Besides, though Goldman did not admit wrongdoing, it acknowledged making a mistake in how it marketed the now notorious Abacus CDO.
From a broader regulatory perspective, the filing of the suit looks like the political play of the year so far. When it was launched in April, the case helped bolster the Obama administration's push for tough financial reform. It was also a big reason why the bill got tougher as it meandered through the legislative process.
The action energized Democrats and made Republican opposition more perfunctory than passioned. The SEC once again seemed relevant, undermining efforts to merge it into some new super-regulator. The settlement brings Goldman a bit of closure. But the SEC emerges with a bit more credibility than when it started.