The U.S. Securities and Exchange Commission (“SEC”) announced that it settled the securities fraud action with Goldman Sachs (“Goldman”) that was filed against the firm earlier this year. The action dealt with a synthetic CDO called ABACUS 2007-AC1. As part of the settlement, Goldman agreed to pay $550 million and reform its business practices. The settlement is the largest penalty ever paid by a Wall Street firm.
The Consent of Goldman states that it “acknowledges that the marketing materials for the ABACUS 2007-AC1 transaction contained incomplete information.” “In particular,” Goldman added, “it was a mistake for the Goldman marketing materials to state that the reference portfolio was ‘selected by’ ACA Management LLC without disclosing the role of Paulson & Co. Inc. in the portfolio selection process and that Paulson’s economic interests were adverse to CDO investors. Goldman regrets that the marketing materials did not contain that disclosure.”
“Half a billion dollars is the largest penalty ever assessed against a financial services firm in the history of the SEC,” said Robert Khuzami, Director of the SEC’s Division of Enforcement. “This settlement is 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.”
Further, according to Lorin L. Reisner, Deputy Director of the SEC’s Division of Enforcement, “The unmistakable message of this lawsuit and today’s settlement is that half-truths and deception cannot be tolerated and that the integrity of the securities markets depends on all market participants acting with uncompromising adherence to the requirements of truthfulness and honesty.”
In reaching a settlement with the SEC, Goldman neither admitted nor denied the allegations by consenting to the entry of a final judgment that provides for a permanent injunction from violations of the antifraud provisions of the Securities Act of 1933. Of the $550 million to be paid by Goldman in the settlement, $250 million would be returned to harmed investors through a Fair Fund distribution and $300 million would be paid to the U.S. Treasury.
As for the other Defendant named in the SEC’s action regarding the ABACUS product, 31-year old Goldman banker Fabrice Tourre, the fight against the SEC continues. He denies the SEC’s fraud charges. In a filing made late Monday, Tourre said he can’t be held responsible “for any alleged failings” made by the firm. The filing also said, “The purported claims against Mr. Tourre and the allegations upon which they are based are improperly vague, ambiguous and confusing, and omit critical facts…The purported claims against Mr. Tourre are based solely on alleged actions and omissions concerning information known to many different Goldman Sachs employees working in various aspects of its business, including Legal, Compliance, sales and trading.” Whether Tourre has any culpability in connection with the ABACUS product remains to be seen.
Presently, KlaymanToskes is prosecuting numerous arbitration claims on behalf of aggrieved investors to recover losses sustained in mortgage-backed securities and structured asset-backed securities. These claims have been filed with FINRA Dispute Resolution. The attorneys at KlaymanToskes are dedicated to pursuing claims on behalf of investors who have suffered investment losses. It continues its representation of investors throughout the world in securities arbitration and litigation matters against major Wall Street brokerage firms.