Goldman Sachs Fine in Fraud Case: Wall Street Firm Can Afford It

It sounds like a ton, and indeed the Securities and Exchange Commission says the $550 million fine imposed on Goldman Sachs to settle a civil fraud case is the largest penalty ever paid by a Wall Street firm. But for the company, one of the largest investment banks in the world, it amounted to about two weeks of profit. After all, the firm made $3.3 billion in the first quarter of 2010.

Pro Publica, the non-profit investigative reporters group, did the math after the SEC announced the settlement Thursday. The government had charged Goldman Sachs with misleading investors, who put millions of dollars in a subprime mortgage deal in 2007, just as the housing market was about to collapse. In effect, the unwary investors bet on mortgages that Goldman Sachs expected to fail.

Goldman Sachs did not admit wrongdoing, but agreed to change a number of its business practices and pay the hefty fine, in itself an admission that something was not quite right. Goldman said the so-called Abacus deal, which earned it $15 million in fees, "contained incomplete information."

As for the fine, Pro Publica said it was less then one-tenth of the gain Goldman's stock enjoyed Thursday after word of the settlement -- and it was just a wee bit less than the $500 million the company pledged in late 2009 as a donation to help small businesses after criticism of its bonus structure.

Not only that, but Goldman Sachs could pay the fine immediately if it wished to, the Pro Publica team said, because the average worth of its assets that can be readily converted to cash was about $162 billion in the first quarter of this year.

The U.S. Treasury will get $300 million from the penalty while Goldman's unlucky investors will get the rest. The amount is only about eight times the pay of a single individual at Goldman Sachs, Pro Publica said. In 2007, CEO Lloyd Blankfein made $68 million in salary and bonuses.