Goldman Sachs is trying to limit the fallout from fraud charges laid against it, insisting clients are standing by the firm and the charges are a "narrow" matter of "he said, she said" which are "not broadly applicable" to the rest of its business.
With regulators in Britain taking an
interest in the mortgage deal at the heart of the case, the bank yesterday made public more details which it hopes will persuade clients it did not dupe investors to win large fees from a favoured hedge fund client.
The Securities and Exchange Commission's civil charges came after the end of a financial quarter in which Goldman was once again the king of Wall St, but threaten to do major damage to its reputation.
The bank earned a record US$3.46 billion ($4.8 billion) in the first three months of the year, and was bringing in revenues at the rate of US$1 million every 10 minutes.
It has begun to accumulate reserves to pay its bumper year-end bonuses, and set aside US$5.49 billion for pay and benefits, representing US$166,000 per employee by the end of March.
Goldman's senior executives say the SEC's charges were timed to influence the debate in Congress over financial reform, in which the White House is pushing to crimp Wall St profitability and to make the big banks pay for any future financial crises.
The bank's co-general counsel, Greg Palm, denied it acted fraudulently in the months before the credit crisis broke in 2007. Palm said it was not just the hedge fund, Paulson & Co, which had a hand in suggesting the structure of the controversial deal, but also the investors who lost money.
Investors including ABN Amro lost US$1 billion when a mortgage investment vehicle called Abacus collapsed in 2007. Paulson & Co paid Goldman US$15 million to set up Abacus and played a key role in putting together the portfolio of mortgage-related securities that went into the vehicle, before betting against it.
The SEC says Goldman failed to mention this when it was marketing Abacus. Paulson made US$1 billion from its negative bet.
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