According to news reports, most prominently a report by Charles Gasparino, Goldman Sachs is looking to settle SEC charges that the firm willfully mislead and defrauded investors in selling an investment product based on subprime mortgages. This is, of course, the smart thing for them to do, if they can. I am not sure that the SEC will let them off the hook lightly. Even a billion dollar fine would be of little consequence to the firm. What to do? Here is what I said in 2005:
"One thing I would note about the (Global Research Analyst) settlement itself is our belief that the penalties should have been income based. I know that's a settled point, but our suggestion would have been that the settling firms be stripped of all income for a 12-month period as a way of ensuring that they would not engage in these egregious actions again. What you do is let the firms run themselves for a 12-month period, you take a look back at how much money they made, and you take all of that money out of the firm as the penalty for the actions they engaged in.
We believe that these firms are critical to the future of democratic capitalism and that fraud is very, very damaging and that it risks -- basically what happens is, as you get these types of egregious actions and fraud, you risk wrecking the system in its entirety, and that's a risk that we don't believe should be borne by the public. It's a risk that we don't think is appropriate."
From testimony by William Michael Cunningham at the Global Research Analyst Settlement Fairness Hearing. April 11, 2005. Before Judge William H. Pauley. In the U.S. District Court for the District of New York.
"One thing I would note about the (Global Research Analyst) settlement itself is our belief that the penalties should have been income based. I know that's a settled point, but our suggestion would have been that the settling firms be stripped of all income for a 12-month period as a way of ensuring that they would not engage in these egregious actions again. What you do is let the firms run themselves for a 12-month period, you take a look back at how much money they made, and you take all of that money out of the firm as the penalty for the actions they engaged in.
We believe that these firms are critical to the future of democratic capitalism and that fraud is very, very damaging and that it risks -- basically what happens is, as you get these types of egregious actions and fraud, you risk wrecking the system in its entirety, and that's a risk that we don't believe should be borne by the public. It's a risk that we don't think is appropriate."
From testimony by William Michael Cunningham at the Global Research Analyst Settlement Fairness Hearing. April 11, 2005. Before Judge William H. Pauley. In the U.S. District Court for the District of New York.