Somewhere lost in the shuffle of Toyota’s brake issue and BP’s oil disaster in the gulf, the SEC has continued making progress in it’s fraud suit levied against Goldman Sachs (NYSE: GS).
Credit Agricole Securities USA Inc. analyst Michael Mayo said in a noted to clients today that Goldman Sachs Group Inc. may settle its Securities and Exchange Commission lawsuit by the end of the year and “as early as July 20.” The firm was sued by the SEC in April, with charged that they have defrauded investors in a collateralized debt obligation). The legal charge for a settlement could reach as high as $1 billion. The company is set to announce second quarter earnings results on July 20, leading some to speculate that the company may make a push to resolve all CDO cases by then, also avoiding criminal action.
Since the SEC filed suit on April 16, shares in Goldman Sachs have fallen 25 percent. This lawsuit stems from the sale of a CDO called Abacus 2007-AC1 in 2007, and the firms response thus far is that the SEC’s action is unfounded. The suit accuses Goldman Sachs of misleading investors about the role that a hedge fund, Paulson & Co., played in both selecting and betting against the obligation.
Mayo added, “We repeat our mantra of ‘settle, settle, settle’ and feel that Goldman management recognizes the need to, and will move the situation along.” Settling lawsuits can be a quick way to offer a mea culpa, and move on. In this case though, the SEC may want to make an example of Golman, and be less likely to settle. The longer this is dragged out, the more negative press the firm will continue to receive. This negative perception, combined with weak equity markets could surely jeopardize the firm’s performance.
The stock has slid 19 percent this year and has been significantly outperformed by the Standard & Poor’s 500 Financial Index, which has posted a 1 percent gain in the same period. Mayo lowered his second-quarter earnings estimate for Goldman Sachs to $2 a share and reduced his share-price estimate to $207.
