Back in April, I wrote about the fraud charges the SEC filed against Goldman Sachs. I was looking forward to seeing what was uncovered in the investigation.
Today, Goldman Sachs settled the matter for $550 million and a three-year internal oversight mandate. $550 million may seem like a lot. Goldman Sachs reported $3.5 billion in profits for the first quarter of 2010. For Goldman, this is a paper cut, not a true wound. The regulatory plan looks reasonable, or at least an improvement on the status quo at Goldman.
More after the jump.
Here are the changes that Goldman must make to comply with the settlement:
1. Goldman must certify its compliance with all business practice changes in writing each year that the plan is in effect.
2. The role of Goldman's firm-wide capital committee must be expanded when it comes to approving the sale of mortgage-backed securities.
3. Goldman's legal or compliance departments must review all written marketing materials. To prove compliance, Goldman will be required to keep a list of all materials reviewed. It must also record the name of the person performing the review and the date approval was granted. This process must be audited once a year.
4. Outside advisers must also review marketing materials in situations where Goldman is the lead underwriter of a sale of mortgage-backed securities.
5. New hires that will deal with mortgage-backed securities must be trained on the related laws within 60 days of hire. All current employees will be required to take a class each year. Goldman must keep records of all training.
Goldman must comply with these policies for three years. Whether the firm will continue to follow them after that point is apparently up in the air. Quite honestly, given the duration of FTC consent decrees, I find it quite sad that the SEC settled on a three year period for these rules. FTC consent decrees, which are quite similar to settlements, often have terms with a duration of 30 years. During that 30 years, the FTC is supposed to oversee the consenting business' compliance with the decree.
It would be refreshing to see the SEC take the same approach. While three years may be a long time to some in the financial sector, it doesn't seem that long to someone observing from the cheap seats.
Let's not forget -- the Abacus offering was built on subprime loans. Those loans, and the failed securities they spawned, were one of the main factors in the economic meltdown of 2008. The people who structured, packaged, and sold those loans made out like bandits. The rest of us, especially homeowners who were sucked in by the promises of mortgage brokers, are left holding the bag.
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