Obliged: Goldman Sachs vs.
The U.S. Securities and Exchange Commission
Synopsis of Case Study
This case study highlights the public relations and
external communications of financial services firm
Goldman Sachs Group, Inc. prior to and amidst its 2010
lawsuit and eventual $550 million settlement with the
U.S. Securities and Exchange Commission. Set against
a backdrop of financial crisis, economic recession and
increased government regulation of financial services
firms, this case study underscores the importance of
reputation management and the obligations of
transparency in the face of public and legal scrutiny.
Case Study Summary Chronology
Initial Setting / Backdrop
• “A Financial Crisis for Financial Institutions” (September 2008)
• Goldman Sachs announcement of record profits (June 2009)
• Announcement of Goldman ‘s CSR Campaign “10,000 Small Business Initiative”
(November 2009)
• Financial Crisis Inquiry Commission Testimony by Goldman CEO and Chairman
Lloyd Blankfein (January 2010)
Case Study
• SEC Lawsuit Announced (April 16, 2010)
• Senate Permanent Subcommittee on Investigations Testimony (April 27, 2010)
• Goldman Sachs announces creation of Business Standards Committee (May 7,
2010)
• $550 million settlement with SEC , U.S. Senate passes “Dodd-Frank” financial
reform bill (July 15, 2010)
A Financial Crisis for Financial Institutions
3/17/08 – Fall of Bear Stearns,
purchased by J.P. Morgan for
$236 million
3/16/09 – AIG bonus scandal
9/15/08 – Lehman Brothers
files for bankruptcy, Bank of
America buys Merrill Lynch
10/3/08 – $700bn Federal
bailout passed
2009
2008
9/16/08 – Government buys
80% of AIG
9/26/08 – Washington Mutual
– largest bank failure in U.S.
history
7/15/09 – Goldman Sachs
announces record bonuses and
profit
12/11/08 – Bernard Madoff
arrested
Figure by The Author
Sources: The Wall Street Journal, The New York Times, Reuters, Bloomberg, www.sec.gov
A Brief Timeline
End of the 1990s to 2005
• Significant rise in house prices in the U.S.
2005-2006
• Burst of housing bubble, home prices start falling, increase in home
foreclosures
Housing Boom
Housing Bust
A Brief Timeline, Cont.
2008
• September 8 – Bailout of mortgage finance companies Fannie Mae and
Freddie Mac
• September 15 – Lehman Brothers files for bankruptcy
• October 3 – President Bush signs the approximately $700 billion Troubled
Asset Relief Program (TARP) in to law
• November 4 – Barack Obama elected 44th U.S. President
2009
• February 17 – American Recovery and Reinvestment Act of 2009 (“Recovery
Act,” or, “The Stimulus Package”) signed into law by President Obama
• May 20 – Establishment of the Federal Crisis Inquiry Commission (FCIC)
• June – Media reports that Goldman Sachs on pace to award record bonuses
• July 14 – Goldman Sachs posts its richest quarterly profit in history, confirms
earmarking of $11.4 billion in employee compensation
• November 17 – Goldman Sachs initiates corporate social responsibility
campaign, committing $500 million to its “10,000 Small Business Initiative”
(Sources: The New York Times, The Wall Street Journal, The Guardian, The Economist, Bloomberg, Reuters, www.sec.gov, www.gs.com,
www.stlouisfed.org, www.treasury.gov)
History of U.S. Bailouts
1970–2008 - $347.5 billion
2008 - $1.7 trillion
(Original Image Source: www. propublica.org; Aggregate financial information from www.cnn.com)
Goldman 2008 Compensation
A Brief Timeline, Cont.
2010
• September 22 – Goldman Sachs approved to become bank holding company,
changing its primary regulator from the SEC to the Federal Reserve Board
• January 13 – Goldman Sachs CEO Lloyd Blankfein testifies before the FCIC
at its first hearing
• April 16 – SEC files complaint against Goldman Sachs
• April 27 – Goldman Sachs employees appear before US Senate Permanent
Subcommittee on Investigations (PSI) hearing in Washington
• May 7 – Goldman announces creation of Business Standards Committee to
review business practices
• July 15, 2010 – Goldman Sachs agrees to pay $550 Million to settle SEC
charges related to ABACUS 2007-AC1 amounting to “the largest fine levied
on a Wall Street firm”
• July 21, 2010 – President signs financial reform bill Dodd-Frank Wall Street
Reform and Consumer Protection Act (“Dodd-Frank Act”) which creates new
financial regulatory organizations and includes the “Volcker Rule,” a proposal to
reform proprietary trading at brokerage firms
(Sources: The New York Times, The Wall Street Journal, The Guardian, The Economist, Bloomberg, Reuters, www.sec.gov, www.gs.com,
www.stlouisfed.org, www.treasury.gov)
A One Sentence News Release
“The SEC’s charges are completely
unfounded in law and fact and we will
vigorously contest them and defend the
firm and its reputation.”
- Goldman Sachs news release dated April 16, 2010.
The U.S. Securities and Exchange Commission
• Primary regulator of securities firms in the U.S.
• The mission of the SEC is: “to protect investors,
maintain fair, orderly, and efficient markets, and
facilitate capital formation”
Source: www.sec.gov, “The investor’s advocate,” 2010.
Cartoon by Sean Delonas , New York Post, April 20, 2010.
Goldman Sachs
Group, Inc.
U.S. Government
Publics
SEC
The Federal Reserve
U.S. Congress
U.S. Treasury Department
Federal Crisis Inquiry Commission
Protections  Feedback
Stakeholder
Publics
Tax-paying citizens
Clients
Shareholders / Investors
“The Economy”
Regulation (Securities Acts, SEC Enforcements)
Legislation (Dodd-Frank Act, TARP)
Figure by The Author
GS Revenue Mix
GS Stock Performance - Crisis
GS Stock Performance - Trial
Acknowledgements
The Author wishes to thank Dr. Pierre
Yared, Columbia University Business
School Assistant Professor of Finance and
economics for his guidance on this project
obtained in a personal telephone interview
with The Author on November 15, 2010.