Two weeks after the Securities and Exchange Commission (SEC) leveled fraud charges against Goldman Sachs, the financial giant is said to be mulling settlement talks with the regulator, according to Fox Business Network.
The report said that Goldman believes the case is without merit but is hesitant to become engaged in a protracted battle with the SEC.
The SEC accused the company of defrauding investors of $1 billion via the CDO called Abacus 2007-AC1, claiming it was designed to fail thereby helping a high net worth Goldman client who had "shorted" the security.
Meanwhile, Aleksandrs Rozens of Investment Dealers Digest reported yesterday that Fitch Ratings on Wednesday revised its ratings outlook on Goldman Sachs to "Negative" because of the firm’s ongoing skirmish with regulators that the credit rating agency says could “adversely impact Goldman’s reputation and revenue generating capacity.”
The negative outlook came as Fitch affirmed the 'A+'/'F1+' long- and short-term issuer default ratings for Goldman Sachs.
“Goldman’s franchise and market position are potentially vulnerable to scrutiny by stakeholders, and like peers, may be affected by the industry’s regulatory evolution,” the rating agency warned in a report on Wednesday.
Civil fraud charges were filed by the SEC last month and, according to published reports, the U.S. Attorney’s Office in Manhattan has initiated a criminal probe in connection with Goldman’s mortgage trading activity.
“Given the level of recent public scrutiny, it is not surprising that other authorities outside of the U.S. have also expressed intentions to investigate select mortgage-related transactions conducted by Goldman,” according to the rating agency.
Fitch added that “at a minimum … the civil charges to date and the pending criminal investigation, coupled with a highly public hearing by the U.S. Senate’s Permanent Subcommittee on Investigations, generate adverse publicity that tarnishes Goldman’s reputation. And for financial services companies, particularly those dependent on the capital markets, reputation is critically important. Moreover, expected follow-on shareholder and investor claims are likely to invariably consume management time and financial resources as well.”
Fitch said it believes Goldman has ample financial resources to address any potential monetary fine or settlement, including full restitution to impacted parties, that may arise from the SEC civil suit, as well as any assessments that may materialize at the conclusion of the pending investigation.
The rating agency said it could not estimate what the total cost of these fines will be but said it does not expect them to be debilitating.