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July 15, 2010 5:14 PM

Goldman, SEC Reach Record $550 Million Settlement

Posted by Brian Baxter

Three months after the SEC first filed securities fraud charges against Goldman Sachs, the financial services giant has reached an agreement with the regulator to pay $300 million in fines to the Treasury Department and another $250 million in restitution to investors, reports The New York Times, which broke the story. The Times notes that the settlement represents the largest penalty ever paid by a Wall Street firm.

The SEC confirmed the settlement with Goldman in a press release issued shortly after The Times's story was published.

"In agreeing to the SEC's largest-ever penalty paid by a Wall Street firm, Goldman also acknowledged that its marketing materials for the subprime product contained incomplete information," said the regulator in a statement.

Robert Khuzami, director of the SEC's division of enforcement, said that the settlement by Goldman should serve as "a stark lesson to Wall Street firms that no product is too complex, and no investor too sophisticated, to avoid a heavy price if a firm violates the fundamental principles of honest treatment and fair dealing."

As previously reported by The Am Law Daily, Goldman assembled a formidable legal team led by Sullivan & Cromwell's Richard Klapper and Skadden, Arps, Slate, Meagher & Flom's Gregory Craig to defend itself in the case. Klapper did not immediately respond to a request for comment. Craig was out of the office and unavailable.

An 11-page consent decree was signed by Goldman general counsel Gregory Palm and S&C litigation partners Klapper, Gandolfo DiBlasi, and Karen Patton Seymour, the head of the firm's criminal defense and investigations group, reports sibling publication The National Law Journal.

The proposed settlement itself is subject to the approval of U.S. district court judge Barbara Jones in Manhattan, but the SEC's litigation against Goldman executive Fabrice Tourre, represented by Allen & Overy's Pamela Chepiga, continues. (The Times reports that Tourre remains on paid leave and that Goldman is continuing to pay his legal bills.)

A Goldman employee who answered the firm's media hotline says the company does not have a comment on the settlement, which comes on the heels of Congress's passage of a financial industry reform bill.

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This 5% "punishment" of Goldman's 2009 net income is another example of what Judge Jed Rakoff said in vetoing the SEC's paltry "fine" v. Bank of America(Sept '09) "designed to provide the SEC with the facade of enforcement." Is Commissioner Khuzami intimi-
dated by Wall Street giants?

Proof that crime pays.

$250,000,000 in restitution.

How much did the investors lose?

I suspect it is in the billions.

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