When the SEC filed civil charges against Goldman Sachs last April, we postulated that the end game would be:
…one of those vague and disappointing resolutions for which the SEC has become famous, as discussed here, whereby the defendant company’s shareholders pay a pile of money as a penalty for what management did (but for which it does not admit wrongdoing) along with some tinkering on the corporate governance side to make it look like more was done.
That seems to have been precisely what happened today with Goldman agreeing to pay some $550 million to settle the case — and without admitting or denying the charges, thanks very much. What strikes us even more than the fact of the settlement — where shareholders will have to cough up the half-billion dollars, as opposed to management having to pay anything out of the huge compensation they made when they were making the decisions that resulted in the penalty — is that news of the deal was obviously leaked during the trading day. A huge spike in volume occurred late Thursday while the NYSE was open and before the formal announcement was made. It was too much to be on the basis of speculation or idle gossip (see chart above).
The Goldman case was just one more example of why it often appears to ordinary investors that the market is a rigged game where those with inside information are the only ones who can profit. The timing of the settlement and what occurred just before it will only add to that suspicion.
Someone at the SEC or Goldman talked, and others made quite a lot of money on the knowledge. The idea that there would be an impropriety connected with the timing of the SEC settlement with a company it accused of wrongdoing and lack of disclosure is more than ironic. It is an outrage that needs a closer look and some fast answers from both the regulator and the company.