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Goldman's SEC Settlement by the Numbers: We Do the Math

How much does the "largest-ever penalty paid by a Wall Street firm" really affect a financial behemoth like Goldman Sachs?

Goldman Sachs has agreed to pay $550 million to settle the SEC's civil fraud lawsuit against it. The SEC is touting the sum as the “largest-ever penalty paid by a Wall Street firm,” but how much does the settlement actually hurt Goldman? We looked a up few numbers to put things into perspective:

It’s about eight times what the head honcho has taken home in a year. In 2007, Goldman did the deal at the center of the SEC's suit, CEO Lloyd Blankfein took home $68 million in salary and bonus.

It’s just a touch less than a Goldman charitable donation. In November 2009, after criticism of big bonuses at Goldman, the firm pledged $500 million to help small business owners.  

It's less then a tenth of the gain Goldman's stock had today. Goldman’s stock took a hit when the SEC announced its lawsuit in April, but since word of the settlement first started circulating today, it’s added back $7.9 billion dollars to its market cap.

It’s about two weeks’ worth of profit. Goldman reported (PDF) earning $3.3 billion in the first quarter of 2010. That’s about $250 million in profit per week.

It’s a sum that Goldman could pay immediately (and probably hundreds of times over).The company’s average global core excess liquidity—the average worth of assets it could readily convert into cash—was $162 billion for the first quarter of 2010.

It’s a fair amount more than what Goldman made on the deal the SEC sued over. Goldman reportedly made $15 million in fees from the CDO deal that landed Goldman in hot water. But keep in mind: Goldman did 25 of these so-called Abacus deals in all, and created many more CDOs without the Abacus label.

Of the $550 million, the U.S. Treasury will get $300 million, and investors who lost out on this Abacus deal will get $250 million.

Meanwhile, Goldman has neither admitted nor denied the SEC’s fraud allegations, although Goldman did acknowledge that its marketing deals “contained incomplete information."

Harvey Pitt, former chairman of the Securities and Exchange Commission, told me the SEC’s extraction of this acknowledgement from Goldman was itself “highly unusual.” He called the settlement "a major victory for the SEC.”

Here’s the statement from Goldman:

In particular, 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.

The terms of the settlement still need to be approved by a federal judge. The SEC's lawsuit against Goldman employee Fabrice Tourre will continue.

As we’ve pointed out, other major banks did deals similar to Goldman’s, and it remains to be seen whether the disclosures in their marketing documents will be sufficient. More on that, I’m sure, to come.

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