Monday, May 10, 2010

Goldman Sachs future litigation costs could cut into profits. $GS

NEW YORK (Dow Jones)--Goldman Sachs Group Inc. (GS), facing securities fraud charges leveled against it by the government, on Monday warned that future litigation costs could cut into profits. The investment bank said it expects further litigation and investigations related to sales of collateralized debt obligations, according to a regulatory filing. Those types of transactions are the focus of the Securities and Exchange Commission’s civil-fraud complaint. “We are involved in a number of judicial, regulatory and arbitration proceedings concerning matters arising in connection with the conduct of our businesses," the company said in a filing with the SEC. "Given the range of litigation and investigations presently under way, our litigation expenses can be expected to remain high. “Goldman said the challenges would not be material to the overall business, but that legal costs and potential settlements could trim operating results. The company spent about $500 million on legal costs in 2009.Analysts has estimated that a settlement of the SEC's current complaint could range between $1 billion and $5 billion. The investment bank continues to deny any wrongdoing in the case. Federal prosecutors are also investigating the 2007 CDO sales that are at the heart of the SEC charges. Lloyd Blank Fein, Goldman's chairman and chief executive, said Friday during the company's annual meeting that the investment bank will look into ways the company can confront the current scrutiny over its business practices. He ware-elected to the board, and shareholders voted down a proposal to split the chairman and CEO posts. “The last few weeks have been...difficult and disappointing," Blank Fein told shareholders on Friday. "Questions have been raised that have gone to the heart of our most fundamental value: How we treat our clients. “He has been criticized for not disclosing the SEC investigation sooner. The company, which was hit by the government complaint last month, said it did not originally believe the SEC investigation would have a material effect onbusiness.Goldman's stock dropped 22% since the charges were filed, wiping out more than $20 billion in shareholder value. The firm also said in the regulatory filing it received letters from investors "demanding the board take action to address alleged misconduct," along with a number of class-action lawsuits. The SEC claims that Goldman and one of its executives, Fabric Toured, misled investors about the role hedge fund manager Paulson & Co. took in packaging mortgage-backed security. Paulson was not accused of wrongdoing in the government’s complaint. Both Blank Fein and Toured earlier this month faced a Senate subcommittee looking into Goldman's role in the financial crisis. Both sides released dozens of e-mails and documents in the days leading up to the testimony, including internal memos where Goldman executives openly criticized the securities. Goldman, which emerged from the financial crisis with record earnings in2009, also disclosed in the regulatory filing that its traders did not lose money during the first quarter. The firm reported that it made more than $100million daily for 35 days during the quarter.-By Joe Bell Bruno, Dow Jones Newswires; 212-416-2469;joe.belbruno@dowjones.comClick here to go to Dow Jones News Plus, a web front page of today's most important business and market news, analysis and commentary: You can use this link on the day this article is published and the following day. (END) Dow Jones Newswires05-10-10 1001ETCopyright (c) 2010 Dow Jones & Company, Inc.10:01 051010

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