Goldman Sachs‘ attempt to settle with the Securities and Exchange Commission in the Abacus case on a lesser charge than fraud, which I and Francesco Guerrera wrote about today, is a reminder of the peculiar way in which US civil securities cases are often resolved.
The standard settlement involves a defendant being fined by the SEC, and disciplined in individual cases, but “neither admitting nor denying” the allegations. The SEC thus gets a scalp and avoids a court case, while the defendant avoids a conviction.
Neither admitting nor denying has always struck me as an odd sort of resolution: similar to the Scottish verdict of not proven, which lies somewhere between guilty and not guilty. Wikipedia notes that this is sometimes known as the “not guilty and don’t do it again” verdict.
A famous example is the case against Henry Blodget, the former Merrill Lynch analyst, which was settled in 2003 with the SEC saying it had found securities fraud violations, while “Blodget neither admits nor denies these allegations, facts, conclusions, and findings.”
Mr Blodget these days runs the Business Insider set of websites and linked to our story this morning, which says something about the nature of life, although I’m not sure exactly what.
Goldman wants to settle without admitting or denying, while paying a fine likely to be in the region of hundreds of millions of dollars. Yet it does not want to have a finding of securities fraud against it even if it would not have to admit to the accusation.
Brad Hintz of Bernstein Research wrote in an extremely well-informed note to clients yesterday that Goldman would try to structure a settlement around Section 17(a)(2) of the 1933 Securities Act, which imposes liability for “negligent misstatement or omission of a material fact” rather than fraud.
This would block the potential for other parties or investors to sue it and would also mean Goldman would not have the word “fraud” hanging over it permanently.
As Mr Blodget puts it, worth a try.
