John C. Coffee, Jr.
Special to CNN
The SEC's enforcement action against Goldman Sachs highlights the widening fissures that underlie Wall Street and raises important issues on three levels:
First (and least important) will be the litigation outcome. Can the SEC convince a court that a strong bias in the portfolio selection process is material to investors, even though the portfolio's contents have been adequately disclosed and approved by an independent portfolio manager?
Second, because the exposure of Goldman's conflicting interests will likely result in some reputational damage to Goldman, investment banks may need to rethink their "Black Box" business model that often places them on all sides of a transaction that they actively structure and market.
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