Friday, May 21, 2010

Goldman Sachs' Best Strategy Is Not To Settle SEC Charges

The best strategy for Goldman Sachs is not to settle the SEC fraud charges against it. Goldman can ask for a non-jury trial before a federal judge and avoid a public jury's dislike for the banking industry.

Federal rules of evidence would benefit Goldman since it will force the SEC to provide evidence, and not innuendo or popular opinion, of the fraud and the necessary intent to defraud. A mere description of the transaction, in of itself, would not show fraud.

Witnesses will be allowed to testify as to the exact meaning and context of emails and other communications. A judge would understand that typical company employee water cooler banter, which now is in the form of email exchanges, is not proof of Goldman Sachs' fraudulent intent or fraud.

The judge would hold the SEC to the existing law and not to what the law should be.

Penalties for this single instance of fraud are limited by securities law to an amount most likely substantially lower than any settlement amount Goldman would enter into with the SEC.

The judge will be unimpressed with the SEC's attempt to broaden the scope of the securities law to include transactions that maybe unethical but not fraudulent. The judge will also be unimpressed with any political pressure the SEC may feel to show it is a strong watchdog agency of the securities industry. In fact, the political climate and popular sentiment may appear to the judge that the SEC is over zealous in its prosecution of Goldman and find that the case does not have any merit.

Federal judges would be even tougher on the US Attorneys on proof of criminality.

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