Thursday, April 22, 2010

Is The Goldman Sachs Case Mary Schapiro's Waterloo?

Despite the anger and the populist sentiment against the investment banks and a general populace belief that the banks caused the housing bust, the banking crisis and the economic recession, many knowledgeable attorneys, based on the facts as presented by the SEC in its civil complaint against Goldman Sachs, believe that Goldman Sachs did not violate any existing securities laws.

Unfortunately, SEC Chairman Mary Schapiro's timing looks political despite claims of denial by the White House and the SEC. The SEC filed its case against Goldman just before Congress began consideration of financial reform legislation and as President Obama pushed financial reform as a priority. Additionally, she was the deciding 3-2 vote to bring the case against Goldman.

Goldman Sachs is looking to rid itself of this case as soon as possible to protect its remaining reputation and to put a chill on other governmental investigations and investor lawsuits.

Settlement at this point is out of the question. The SEC will extract too high a price from Goldman. One of Goldman's options is to ask the court to either dismiss the case or grant summary judgment. Goldman will almost certainly file court motions for dismissal or summary judgment. It is just a matter of when.

If the court grants either a dismissal or summary judgment in Goldman's favor, it will make the SEC look even more politically motivated in bringing the case then it does now. It will be another major embarrassment for the SEC, along with the embarrassing settlement attempt with Bank of America over the Merrill Lynch deal, and the Madoff and Stanford scandals. Major changes will be called for at the SEC including a call for a new SEC Chairman.

Mary Schapiro is a loyal public servant with years of service at the SEC, the CFTC, NASD and FINRA. The Goldman Sachs case could turn out to be the end of Mary Schapiro's career at the SEC and possibly in government service. In being a loyal public servant in a populist administration, she may have put her career on the line in being the SEC Chairman and the deciding vote to bring an extremely weak case against Goldman Sachs.

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