Goldman's $550 million SEC settlement: Who gets the money?
Of the $550 million that Goldman Sachs Group on Thursday agreed to pay to settle the government’s securities fraud suit against the company, $300 million will go to the Treasury as a penalty.
Your share as one of 310 million Americans: about 97 cents.
The other $250 million will reimburse two sophisticated investors that were among Europe’s biggest casualties of the global financial-system crash. They were the ones Goldman allegedly duped -- although the Wall Street titan had insisted to the SEC that the investors knew exactly what they were getting into, or should have known.
The German bank IKB in 2007 bought $150 million of the subprime-mortgage-related securities that Goldman concocted and sold. The SEC alleges that Goldman failed to disclose in its marketing materials that the securities were chosen in part by a hedge fund that was betting on their failure.
IKB lost its entire $150 million as the securities crumbled in value with the housing bust. It will get all of that back from Goldman.
Interestingly enough, IKB had its own struggle with accurate disclosure: The bank’s former CEO on Wednesday was convicted in Germany of misleading IKB’s investors about the extent of the bank’s investments in U.S. subprime loans in 2007.
IKB required a series of German government bailouts in 2007 and 2008. It was sold later in 2008 to Lone Star Funds, a Dallas-based private equity firm.
Goldman also will pay $100 million to Royal Bank of Scotland, which bought the Dutch bank ABN AMRO in late 2007. Via credit default swaps, ABN AMRO in 2007 had agreed to insure the highest-quality portions of the Goldman securities.
It was a bad move: The collapse of the securities left ABN AMRO on the hook for $841 million. That’s what Royal Bank of Scotland paid to Goldman in August 2008 to unwind the insurance deal. Most of that sum was subsequently paid by Goldman to Paulson & Co., the hedge fund that had helped design the deal.
Royal Bank of Scotland had to be rescued by the British government in late 2008 as the bank’s credit losses deepened.
Goldman shouldn't have much trouble writing those reimbursement checks: The $550 million amounts to just 16% of the $3.46 billion the firm earned in the first quarter alone, and 4% of its $13.4-billion in full-year 2009 profit.
-- Tom Petruno
Photo: Goldman's New York headquarters. Credit: Brendan McDermid / Reuters