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The Securities & Exchange Commission on Friday sued investment bank Goldman Sachs for defrauding investors. It could severely damage Goldman's reputation and a settlement, if it happens, could be very expensive.
The sheer spectacle of the U.S. Government charging Wall Street titan Goldman Sachs with civil fraud has been enough to rattle the financial markets and send Goldman's shares reeling. At midday, the investment bank's stock was down more than 12% and the price of put options on Goldman shares (bets that the stock will keep declining) were up dramatically. But beyond the organizational earthquake that has just been unleashed at Goldman— possibly damaging its reputation for years to come— how much money might it actually have to fork over?
Whether the case goes to trial or is settled out of court, the fines and penalties could be steep if Goldman is found at fault. At first blush it's just pocket change for the giant investment bank, which had revenues of $51 billion last year. The $15 million fee that Goldman earned for putting together the now infamous CDO security known as ABACUS 2007-AC1 (ABACUS) will surely be disgorged if it loses at trial or reaches a settlement, and it could easily be tripled as part of the penalty.
Filed under: Economy
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