Charges Aside, What About Goldman’s Nondisclosure of a Potential Lawsuit?

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Charges Aside, What About Goldman’s Nondisclosure of a Potential Lawsuit?
by Marian Wang, ProPublica - April 20, 2010 11:20 am EDT


In a conference call this morning, Goldman Sachs’ co-general counsel Greg Palm said the firm was “somewhat surprised <2>” by the SEC’s civil suit last week, since “no one had told us in advance.” Typically, when the SEC files a lawsuit, it gives companies advance notice, so they can either settle the case quickly or brace themselves for a PR hit. In this case, the SEC didn’t give Goldman the courtesy.

But far from being completely blindsided <3>, the firm has known about the potential for civil charges since July 2009 <3>, when the SEC first gave the bank a warning known as a Wells notice. While the investment bank felt the Wells notice warranted a 49-page defense <4> and then 20 more pages <5> of supplemental documents that it submitted to the SEC, Goldman Sachs made no mention to shareholders of the possibility of legal action against the firm.

Why not? First, because by the SEC’s rules, they technically didn’t have to—not unless the amount involved exceeded 10 percent of the firm’s current assets. With about $849 billion <6> in assets at the end of 2009, Goldman could reasonably expect that a lawsuit over a $2 billion <7> CDO would never result in penalties nearing 10 percent of its assets.

Of course, nothing about the SEC rules forbade them from making the disclosure either.


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http://www.propublica.org/ion/blog/item/charges-aside-was-goldmans-non-disclosure-of-potential-lawsuit-material

It may not be material to the company under Regulation S-K, but it's material to the investors holding Goldman's stock or investors considering buying Goldman securities.

but your comment sure makes them look a tad guilty imo. What and why were they hiding?

I believe a decision was made not to disclose it out of concern for the hit it might cause on Goldman's reputation and standing with institutional investors like pension fund managers. If pension fund managers and other investors feel that Goldman is playing favorites than it will cut into the business.

Under the current SEC disclosure rules, Goldman was not required to make the Wells notice public. I think that needs to change.