OBLIGED: GOLDMAN SACHS VERSUS THE U.S. SECURITIES AND EXCHANGE
COMMISSION - PAGE 1
Obliged: Goldman Sachs versus the U.S.
Securities and Exchange Commission
Abstract
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 lieu of heightened public and legal scrutiny.
Table of Contents
I.
Introduction: A One Sentence News Release
II.
Situation Overview
II.a. A Financial Crisis for Financial Institutions
II.b. The SEC versus Goldman Sachs
III.
Organization
III.a. The Company
III.b. Timeline of Key Events
III.c. Goldman Sachs and Public Relations
III.d. On Reputation
IV. Obliged: On Trial
V.
Aftermath
VI. Appendices
VII. Sources and References
OBLIGED: GOLDMAN SACHS VERSUS THE U.S. SECURITIES AND EXCHANGE
COMMISSION - PAGE 2
Introduction: A One Sentence News Release
At 10:33 a.m. on Friday, April 16, 2010 the U.S. Securities and Exchange Commission (“SEC”),
the chief government regulator of securities and trading firms in the United States, announced a civil
lawsuit against Goldman Sachs Group, Inc. (“Goldman Sachs,” or “Goldman,” hereafter) alleging fraud
in its structuring and marketing of a mortgage-backed synthetic collateralized debt obligation product
named ABACUS 2007-AC1 (“ABACUS”). 1 Goldman Sachs’ media relations managers were quick in
their initial response to the fraud allegations and that same day issued the following 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, April 16, 2010)
One sentence, that was all. But this one sentence told enough—Goldman’s communications managers
were engaged. A key word in the sentence was “reputation.” The SEC had compelled Goldman Sachs
into engaging in a primary function of public relations, reputation management, and the firm was, by its
own admission, on the defensive.
A good reputation is an intangible asset that manifests its value and importance by catalyzing
positive financial performance and fostering other non-financial benefits such as increased employee
morale and the ability to attract and acquire talent. An organization’s reputation with its stakeholders
must be affirmed, protected and maintained. When an organization’s reputation is threatened its
resiliency is tested and its financial future is at stake. These are prominent refrains in management,
communications and public relations literature (Coombs, 2010, p. 164).
Goldman Sachs explicitly recognizes the value of its reputation in its business principles. From
the section entitled, “Our People” on its website is this statement: “Our assets are our people, capital and
reputation. If any of these is ever diminished, the last is the most difficult to restore”. For Goldman, the
SEC trial’s threat to their reputation had immediate financial consequences. Weighing the SEC’s fraud
charges, investors spooked on April 16, and at day’s end Goldman shares had dropped 13%, a loss on
paper of $12 billion in equity market value.
In the three months between the announcement of the SEC lawsuit on April 16 and its settlement
on July 15, Goldman Sachs waged an unprecedented defense of its reputation in the news media, before
congress, and in the courtroom. Goldman’s challenge was to counter the SEC’s charges, explain its
business practices and its role in the financial system to government officials, and to regain the trust of
its stakeholders, chief among them clients and investors. Goldman also found itself obliged to engage
with the media in order to explain its core values to an American public whose opinions of the firm had
grown increasingly negative.2
Relying on information culled from news releases, media interviews, government testimonies
and exhibits, news articles, Goldman Sachs’ notes to shareholders, its company website and its public
filings, this case study will present Goldman Sachs’ public relations and communications efforts prior to
and amidst the 2010 SEC lawsuit.
Refer to Appendix C “Quick Glossary of Financial Terms” for an explanation of synthetic CDO’s and other financial terms
used in this case.
2
Even prior to the SEC trial, Goldman Sachs had engaged Public Strategies, a consulting firm, to poll individuals about the
firm. It was reported that 49% of the poll’s respondents had a negative view of the firm. (Sorkin, April 1, 2010).
1
OBLIGED: GOLDMAN SACHS VERSUS THE U.S. SECURITIES AND EXCHANGE
COMMISSION - PAGE 3
Situation Overview
A Financial Crisis for Financial Institutions3
It is useful to situate Goldman’s trial within the larger setting of financial crisis, economic
recession and increased government intervention in financial markets and institutions. To achieve this
we must turn back the clock.
The end of the 1990’s through to 2005 saw a significant rise in housing prices. But by 2005
home prices began to fall dramatically and home foreclosures increased (see Figure 1 below). Indeed, a
widely accepted thesis is that the fall in housing prices was a leading indicator for the beginning of the
financial crisis (Yared, 2010).
Figure 1 - Housing Bubble Burst4
Image Source: www.standardandpoors.com
The year 2008 can safely be called one of the most dramatic years ever in the U.S. financial
services industry. Throughout 2008, the industry suffered massive setbacks in the form of declining
asset values, collapses in the subprime mortgage securities market, and bank failures. Beginning in
March of 2008, the stalwart Bear Stearns, which a year earlier had traded in the $150 per-share range,
fell to a two-dollar stock (www.finance.yahoo.com). A now globalized mortgage backed securities and
3
Acknowledgements to Dr. Pierre Yared, Assistant Professor of Finance and Economics at Columbia Business School for his
insight into the key drivers of the financial crisis obtained during a personal telephone interview with The Author on
November 15, 2010.
4
Unless noted, all figures included herein were created by The Author using public data.
OBLIGED: GOLDMAN SACHS VERSUS THE U.S. SECURITIES AND EXCHANGE
COMMISSION - PAGE 4
derivatives meltdown and subsequent credit crunch brought many banks and trading firms to the brink
of failure. September 2008, perhaps the most dramatic month in the history of modern financial
institutions, was punctuated with a variety of shakeups. Notable among these failures was the fall of
Lehman Brothers, one of the oldest investment banks in the United States. Large banks such as
Washington Mutual and large brokerage firms like Merrill Lynch saw revenues fold and they were
acquired by better capitalized competitors. But even these acquiring companies could not avoid the
financial crisis. The surviving institutions, firms such as J.P. Morgan and Bank of America, were
eventually given bailout or “TARP” funds which are still being repaid and the effects and effectiveness
of which are still being debated. The year 2008 ended with a bang and not a whimper with the
unraveling of the largest Ponzi scheme in American history, the estimated $65 billion “Madoff Scandal”
(Federal Reserve Bank of St. Louis, 2010).
The figure below summarizes the key points of this narrative on the financial crisis.
Figure 2 - Financial Services Industry Crisis
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
(Image Sources: The Wall Street Journal, The New York Times, Reuters, Bloomberg, www.sec.gov)
The turbulence of the domestic economy compelled the U.S. Government to take aggressive
financial policy actions during and after 2008. The following figure provides a pictorial depiction of
government bailouts (a catch-all term for government assumption of debt and provisioning of funds in
support of a failing enterprise), the colored circles indicating specific government interventions, the size
of which is proportional to their dollar amount.
OBLIGED: GOLDMAN SACHS VERSUS THE U.S. SECURITIES AND EXCHANGE
COMMISSION - PAGE 5
Figure 3 - “Bailout Nation5” - A History of U.S. Government Bailouts
(Original Image Source: www. propublica.org; Aggregate financial information from www.cnn.com)
The largest beneficiaries of the recent bailout bills have been financial institutions (most prominently
exemplified in the $700 billion, 2008 Troubled Asset Relief Program “TARP”). By his own admission,
Goldman CEO and Chairman Lloyd Blankfein testified to the Federal Crisis Inquiry Commission
(FCIC) that “without question, direct government support was critical in stabilizing the financial system.
And we benefitted from it” (FCIC, January 13, 2010). 6
Financial institutions faced particular scrutiny for their catalyzing role and complicity in the
financial crisis. One force behind the crisis was the mismanagement of financial innovation which
involved the misvaluation of assets and the extensive pooling and slicing of risk in CDOs, the values of
which did not capture the full impact of massive default risk (Yared, 2010). Derivative product
innovation began as a key driver for wealth and value creation and a means of transferring risk. As
Lloyd Blankfein explained to the FCIC, “You don’t want to fail to innovate on the one hand. And on
the other hand, you don’t want to bear the consequences of innovation that goes poorly” (FCIC, January
13, 2010). But during the crisis, financial institutions collapsed under the trappings of their own
ingenuity.
One firm, however, was making headlines during the crisis for a different reason. Securities firm
Goldman Sachs was profitable in 2008 and in July 2009 was announcing record profits and significant
bonuses for its employees. It was expressed in the media as early as August of 2008 that “the bank that
largely anticipated and avoided the problems with subprime securities and other financial instruments
[was] Goldman Sachs” (Davidoff, 2008). But to some, Goldman’s success during the industry and
economic downturn was anathema. As one journalist wrote in October 2009, “It’s a growing public
relations nightmare for Wall Street’s dominant firm as it prepares to report another round of robust
The term “Bailout Nation” is borrowed from the title of an eponymous 2009 book by writer Barry Ritholtz.
To be noted, the financial bailouts have transcended executive administrations with TARP coming from the end of the Bush
administration and the automotive bailout and financial “stimulus” bill coming from the Obama administration.
5
6
OBLIGED: GOLDMAN SACHS VERSUS THE U.S. SECURITIES AND EXCHANGE
COMMISSION - PAGE 6
profits and update its bonus pool, which is on a pace to top $20 billion for the year” (Eder, 2009). In
other words, Goldman’s good news was bad news for its reputation.
The SEC versus Goldman Sachs
Given the complexity of the financial derivative product under question, the particulars of the
SEC case are a challenge to articulate but at its most basic the SEC alleged fraud in Goldman’s
structuring and marketing of a synthetic collateralized debt obligation product named ABACUS 2007AC1. The SEC complaint alleged that Goldman was responsible for “misstating and omitting key facts
about a product tied to subprime mortgages as the U.S. market was beginning to falter” (SEC, April 16,
2010). Goldman’s alleged crime was one of omission and the SEC’s lawsuit hinged on the issue of
inadequate disclosure. Among the key omissions cited by the SEC was Goldman Sachs’ failure to
disclose the role played by hedge fund (and Goldman client) Paulson & Co. in the selection of
residential mortgage backed securities (RMBS) contained in the product’s portfolio. The SEC alleged
that after helping select the RMBS for the product’s portfolio, Paulson & Co., using the transaction
services of Goldman Sachs, entered into a short position on those same securities. Thus, argued the
SEC, Paulson & Co. “had an economic incentive to select RMBS that it expected to experience credit
events in the near future” (SEC, April 16, 2010). To distill: a bad housing market would yield Paulson
& Co. money and the Government was suing Goldman Sachs for not disclosing this. And also material,
Goldman had accepted a fee, $15 million to be exact7. The SEC was attempting to elevate Goldman’s
lack of disclosure in the ABACUS deal to the more severe allegation of fraud. Given the charges,
Goldman was now obliged to explain its role in the ABACUS offering to its both its clients and its
regulator, the SEC.
Here it must be noted that financial institutions (particularly those with a securities brokerage
function) are among the most highly regulated in business and even without the obligations of a
subpoena from a government entity like the SEC, they already produce substantial disclosures. In the
U.S. a full-service, financial services firm with banking, securities brokerage and wealth management
services is regulated and reviewed by no fewer than 17 institutions.8 In addition to disclosing
information to regulators, firms such as Goldman must disclose to potential investors the risks
associated with investment in a product’s prospectus and marketing materials.
But the ubiquity of regulators and supervisory bodies does not imply that these institutions
embrace transparency in all of their dealings. In fulfilling their vital role of providing liquidity, enabling
efficient markets and functioning as the engine behind economic growth, financial institutions strike a
tricky balance between transparency and confidentiality. Full transparency is not the modus operandi of
brokerage and transaction services firms. They must with one hand deliver extensive disclosures while
with the other hand secure strict client records and information. Institutional clients do not want their
own trading strategies revealed and neither Goldman nor their market making clients want to lose their
competitive advantage by having their positions exposed. Trading strategies and negotiations are valued
7
Goldman would make sure in a second news release on April 16, 2010 that it had, all told, lost money on the ABACUS deal
in the amount of $90 million.
8
The Author has specifically used the member institutions of the Financial and Banking Information Infrastructure
Committee (FBIIC) chartered under the President’s Working Group on Financial Markets. The FBIIC includes Federal
financial regulators, and associations of State financial regulators. Prominent among them are the Federal Reserve Board, the
Department of The Treasury, the Commodity Futures Trading Association and the SEC. The new Dodd-Frank Bill passed in
2010 creates two additional Federal organizations, the Financial Stability Oversight Council and the Bureau of Consumer
Protection.
OBLIGED: GOLDMAN SACHS VERSUS THE U.S. SECURITIES AND EXCHANGE
COMMISSION - PAGE 7
proprietary information (for example, by Goldman’s own admission, and here they must be regarded as
experts, it is standard practice in market making not to reveal the buyer to the seller and vice versa)
(Goldman Sachs, April 16, 2010).
Goldman Sachs was keenly aware of the implications of the SEC allegations regarding its
dealings with one stakeholder group in particular: its clients. At its annual meeting in May 2010, in the
midst of the SEC trial Lloyd Blankfein remarked “Questions have been raised that go to the heart of this
institution’s most fundamental value: how we treat our clients” (Morgenson & Story, 2010). If the fraud
charge was true it implied that Goldman had perhaps favored the priorities of Paulson & Co. over the
other clients involved in the ABACUS deal. It also suggested that Goldman was perhaps more
interested in its fee than in the long-term success of the clients who were to invest in the ABACUS
product. And the word “fraud” alone implied that Goldman’s actions were deliberate rather than
unintentional. So with its clients, particularly those invested in ABACUS, there was substantial
communications and public relations work to be done.
Organization
The Company
Goldman Sachs is one of the oldest and largest financial intermediaries and brokerage firms in
the United States. Goldman Sachs began in 1869 as the sole enterprise of Bavarian immigrant Marcus
Goldman who would buy promissory notes from New York City merchants at a discount, giving them
the cash needed to operate their businesses, and then sell those notes to commercial banks for a small
profit or “spread.” After thirteen years as a one man show in the mercantile paper trade, in 1882 he took
on as partner Samuel Sachs, the husband of his oldest daughter (Ellis, 2008). The firm’s partnership
structure lasted 117 years until 1999 when Goldman Sachs sold equity shares in an initial public
offering. Today it trades under the ticker “GS” and as of December 10, 2010 had an equity market value
of $86 billion and over 35,000 employees worldwide.
As written in its 2009 annual form 10-K, Goldman Sachs is a:
“global investment banking, securities and investment management firm that provides a wide
range of financial services to a substantial and diversified client base that includes corporations,
financial institutions, governments and high-net-worth individuals”.
(Goldman Sachs Form 10-K, 2009)
Goldman’s three primary business segments are investment banking, asset management, and trading and
principal investments. Investment banking involves capital raising, merger and acquisition advisory,
and valuation assignments from which Goldman receives fee and underwriting income. Asset
management (often used interchangeably with the term wealth management) involves the managing and
investing of financial assets of large institutions like pension funds and corporations as well as high networth individuals. Goldman’s largest revenue segment (accounting for nearly 3/4 of its total revenue in
2009) is its trading and principal investments business. Goldman groups many of its trading and
principal investment activities under the catch-all term “market making” which describes a variety of
investing, trading and financial intermediary activities that “provide the necessary liquidity to help
ensure that buyers and sellers can complete their transactions and markets can function efficiently”
(FCIC, January 13, 2010).
OBLIGED: GOLDMAN SACHS VERSUS THE U.S. SECURITIES AND EXCHANGE
COMMISSION - PAGE 8
Timeline of Key Events
Below is a timeline of key events for Goldman Sachs and the financial services industry during the
period under inquiry.
2008





2009





2010






September 8 – Bailout of mortgage finance companies Fannie Mae and Freddie Mac
September 15 – Lehman Brothers files for bankruptcy
September 22 – Goldman Sachs approved to become bank holding company, changing its
primary regulator from the SEC to the Federal Reserve Board
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
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”
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”9
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)
The words are the SEC’s own and uniquely qualified. The claim is measured because in 1988, Drexel Burnham Lambert
(DBL) paid $650 million to settle a case with the SEC (Craig & Scannell, 2010).
9
OBLIGED: GOLDMAN SACHS VERSUS THE U.S. SECURITIES AND EXCHANGE
COMMISSION - PAGE 9
Goldman Sachs and Public Relations
The following are quotes from Goldman Sachs’ partner, and current chief spokesperson and
media relations contact Lucas van Praag:
“There’s speculation, and there is stupidity. This speculation transcends the simply stupid and
takes it to an entirely new level...giving credibility to tittle-tattle is pretty shoddy journalism.”
“It is preposterous that The Wall Street Journal would even consider publishing such effluent.”
“The speculation about compensation is ill-informed and, frankly, pretty stupid.”
“There is nothing to be taken away from the story other than the fact that reporter fails to
comprehend the subject matter.”
“As prudent risk managers, we hedge our risk. To describe that activity as a cynical breaking of
faith with clients is both misleading and horribly naïve.”
(Pressler, 2010)
When asked about Goldman’s strategy for relating with the media, van Praag told the UK newspaper
The Guardian, “The approach we’ve adopted to media coverage is that we aggressively rebut and refute
reports or commentary that we believe are wrong. And if you want it to be noticed, you’ve got to make
it notable” (Clark, 2010). Indeed, an internal e-mail dated November 18, 2007 submitted as an exhibit
to the Senate Permanent Subcommittee on Investigations (PSI) confirms this. In this e-mail exhibit, van
Praag, in a message addressed to Lloyd Blankfein and copied to other C-suite executives writes, “GS
gives in not in the story,” referring to a yet-to-be published story about Goldman’s “dodging of the
mortgage mess” scheduled to be published in an unnamed publication the following day. Regarding the
same story van Praag also writes, “Tomorrow’s story will, of course, have ‘balance’ (i.e. stuff we don’t
like)”. What is apparent from this particular e-mail is that Goldman’s communications executives have
the ear of management and vice-versa.10
The idea that Goldman Sachs’ managers may be purposefully oblique to people inquisitive about
its business was brought up to Lloyd Blankfein by FCIC Vice Chairman Bill Thomas in the
commission’s first hearing: “To what extent can you folks, even from a PR point of view, talk about
simplification so that people can understand? Or is it kind of an agreement that you’re going to have a
fraternity which gets paid highly and has the jargon—we run into that a lot in government; I used to run
into it a lot in government—in which jargon was used to reduce the number of people they had to
interact with (FCIC, January 13, 2010). As one author suggests, Goldman’s stance on public relations
may date as far back as its founding. Charles D. Ellis writes in his 2008 book, “The Partnership: The
Making of Goldman Sachs” that the family of founding partner Samuel Sachs “believed public relations
was a bad thing and would have none of it.” There can be little assurance that this quote or sentiment is
accurate but if correct then Goldman Sachs preferred being akin to an “invisible hand” behind wealth
creation. Ellis continues: “The principle responsibility of those who labor in public relations is to
minimize the number of articles about the firm, to discourage pieces about individuals, and to project a
tone of modesty and moderation” (2008).
10
See Appendix B for a copy of this e-mail.
OBLIGED: GOLDMAN SACHS VERSUS THE U.S. SECURITIES AND EXCHANGE
COMMISSION - PAGE 10
Ellis makes clear in his book to reveal a conundrum about researching Goldman Sachs, that of
access. Even he had difficulty getting interviews with employees and gaining access to the firm, to the
point where he concluded that “anonymity is almost a core value at the firm” (Ellis, 2008). This makes
teasing out the structure and strategy of Goldman’s public relations efforts a challenge for reporters,
researchers and case study authors. On matters of advertising, the company’s stance is clearer—it does
little to none at all. 11
It is an interesting supposition that the public relations strategy of Goldman would be no public
relations at all. But this is inaccurate as well as a misconception. Based on their website, Goldman has
a Media Relations department, the primary contact of which is the aforementioned spokesman Lucas
van Praag. Media Relations is perhaps Goldman’s domestic euphemism for a Public Relations
department. This is supposed only because it makes clear of its retaining of various agents of record for
public relations in its foreign markets, but does not list an agent of record on its website for its North
American operations.
The following figure is the author’s attempt to place Goldman Sachs and its strategic publics in
context with each other.
Figure 4 - “The Triumvirate” - Goldman Sachs and its Strategic Publics
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
The word “advertise” is nowhere to be found in Goldman’s 400+ page annual report form 10-K or their 2009 “glossy”
Annual Report. This may be because it caters primarily to an institutional client base versus a retail client base, but one
cannot be certain. What this section intends to emphasize is that without access to the firm and its employees the researcher
is bound to such suppositions.
11
OBLIGED: GOLDMAN SACHS VERSUS THE U.S. SECURITIES AND EXCHANGE
COMMISSION - PAGE 11
Goldman inevitably maintains relationships with key stakeholder publics beyond its clients, including
but not limited to the media, shareholders, and the U.S. Government. As the SEC trial demonstrates, its
relationship with the government cannot be overvalued. Public relations, public affairs and external
communication with stakeholders is unavoidable and a necessity.
On Reputation
Golden Slacks. Goldmine Sacks. The Firm. Or, as one Rolling Stone Magazine columnist
recently dubbed them, “a great vampire squid wrapped around the face of humanity” (Taibbi, 2010).
These are just a few nicknames for Goldman Sachs. Another is Government Sachs, because of the
crossover activities many of its ex-employees have made into government positions both appointed and
elected. Prominent Goldman alumni during this period under inquiry include Henry Paulson who was
Secretary of the Treasury under President George Bush, and former New Jersey governor Jon Corzine.
Another populist refrain is to liken the activities of market making/financial intermediary firms such as
Goldman to that of a casino. Notice the language used by these New York Times writers:
“Goldman’s bets against WaMu, wagers that took place even as it helped WaMu feed a housing
frenzy that Goldman had already lost faith in, are examples of conflicting roles that trouble its critics
and some former clients.”
(Morgenson & Story, 2010)
It is difficult and perhaps inadvisable to declare exactly what is meant by blanket terms such as “public
at-large” or “public opinion” and “populist sentiment” but the terms do hold some currency. And it is
important to note that though these nicknames and analogies are somewhat populist in nature and do not
necessarily reflect the views of all or even most of Goldman’s stakeholders, they do exist.
Goldman’s decline in reputation prior to the SEC trial seemed to concern its higher management.
As CFO David Viniar told a reporter for The Wall Street Journal in 2009, “I would prefer people to be
focused on the success of our business, how well we’re doing and how well our people are performing”
(Bowley, 2009). The word here (if we are to take this quote as letter perfect) is the word “prefer.”
Unfortunately for corporate communications managers, they cannot mandate or control what the media
says about them. Viniar (nor does any company executive for that matter) does not have the privilege to
tell the media exactly what to emphasize during the economic downturn. Furthermore, people were
focusing on the success of the company and how well it was doing, they just seemed not to like it.
Goldman appeared to have a split reputation, one with clients, investors and employees who remained
loyal to it throughout the financial crisis and the SEC trial and one with the public at-large.
Obliged: On Trial
April 16, 2010 through July 15, 2010 would prove to be three trying months for Goldman Sachs.
If the firm was to defend its reputation then it would face trials on two fronts, with the public at-large
and with one of its primary regulators, the SEC. The three month trial period including both the Senate
PSI hearing and Goldman’s media relations efforts during the SEC trial gave the public unprecedented
insight into the firm.
In April 2009, Goldman Chairman and CEO Lloyd Blankfein was explaining the mechanics and
drivers of the financial crisis to investors and clients; a year later he was tasked with defending his
firm’s potential complicity in the crisis in sworn testimony before members of the U.S. Senate. The PSI
was making Goldman its special “case study” for its April 27, 2010 hearing entitled “Wall Street and the
OBLIGED: GOLDMAN SACHS VERSUS THE U.S. SECURITIES AND EXCHANGE
COMMISSION - PAGE 12
Financial Crisis: The Role of Investment Banks.” The Senate hearing proved much less congenial than
the January 13 FCIC hearing. Even PBS went with the language that U.S. Senators “vilified” Goldman
executives who remained adamant throughout the hearing that they had not misled investors (PBS
Newshour, April 27, 2010). The 910 pages of exhibits, including confidential memos, internal
procedures, internal e-mails, proprietary research, and offering memoranda revealed the firm like never
before.
The wake of the SEC trial would induce more lobbying efforts from Goldman. A former Justice
Department spokesperson was quoted as saying “Goldman relied on their top-level connections so they
wouldn’t have to worry about the public relations and the crisis lobbying” (Schmidt, 2010). During the
months of the SEC investigation, Goldman mined its reservoir of contacts to wage a public relations
campaign in Washington. The company hiked up its spending on lobbying 72 percent from the previous
year. In the words of one columnist, the lobbying team was tasked to stage “a more aggressive lobbying
and public relations campaign, one aimed at making sure that when the history books are written,
Goldman’s side of the story is told” (Tse, 2010).
If the public prosecution of Goldman had begun as soon as the SEC’s announcement on April
16, then one might say that the public defense began eleven days later, on April 27 the day that Lloyd
Blankfein gave no less than six major network television appearances. On that day, amidst the Senate
PSI hearing, Lloyd Blankfein held TV interviews with FOX News, CNBC, CBS, Bloomberg, ABC
News, and CNN. On April 29, Blankfein appeared on NPR. On April 30, broadcast journalist Charlie
Rose had Blankfein, a first time guest, for the hour. Media appearances had become the newest part of
Blankfein’s job description.
By May, Lloyd Blankfein seemed to have gained some insight from his public interactions and
on May 7 he announced the creation of a new Business Standards Committee designed to examine how
the company conducts its business and manages its own reputational risk. A week later, at the firm’s
annual shareholder meeting Blankfein acknowledged:
“We recognize that there is a disconnect between how we view the firm and how the broader
public perceives our roles and activities”
(Goldman Sachs, May 14, 2010)
It was a way of admitting that Goldman Sachs had an image problem.
Aftermath
In lieu of the SEC allegations and trial Goldman took three important actions, it increased its
media exposure, increased its lobbying efforts and established a Business Standards Committee.
Despite its lawsuit with the SEC and its decline in equity market value, Goldman maintained its market
leadership during the summer of 2010, leading Wall Street league tables in M&A advisory deals
(Hodgson, 2010).
Ultimately, the SEC and Goldman Sachs agreed to a settlement. Goldman Sachs was fined $550
million on July 15, 2010, in what the SEC declared was the largest fine it had ever levied on a Wall
Street firm. If there is one lesson to be learned from the New Deal it is that financial crisis imparts
increased regulation. On July 15, 2010, the same day as Goldman’s settlement with the SEC, the U.S.
Senate approved the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“DoddFrank Act”) which president Barack Obama signed into law days later. A new era of financial
regulation was set to begin.
OBLIGED: GOLDMAN SACHS VERSUS THE U.S. SECURITIES AND EXCHANGE
COMMISSION - PAGE 13
But increased regulation might not translate necessarily into successful reform. In specific
reference o Goldman’s trial with the SEC, Andrew Ross Sorkin, editor of The New York Times Wall
Street focused “DealBook” section said “I’m not sure that this settlement, and all of those headlines,
unfortunately, are actually going to shift the ethos and culture of Wall Street” (PBS, July 16, 2010).
Perhaps hampering the regulation process is that under its mandate, the SEC cannot bring
criminal charges only civil. Criminal charges are under the jurisdiction of the U.S. Department of
Justice. As of the writing of this case in January 2010 the SEC enforcement has been the highest level
of censure related to the issue.
A civil settlement is akin to the criminal plea of nolo contendre thus, who “won” the trial is a
subject of discussion and debate. Also debatable is whether or not Goldman Sachs’ public relations
efforts will be effective in improving its reputation with the public at-large going forward especially if it
continues to achieve record numbers in an as yet unresolved economic downturn. Alas, it is not the task
of this case study to speculate. But what the SEC trial and public scrutiny (from individuals, journalists,
investors, regulators, and elected officials) accomplished was to oblige Goldman into responding to
attacks on its reputation thus enabling the public to better ascertain its public relations and corporate
communications style and company ethos.
--END OF CASE--
OBLIGED: GOLDMAN SACHS VERSUS THE U.S. SECURITIES AND EXCHANGE
COMMISSION - PAGE 14
Appendices
Appendix A: Goldman Sachs SEC Trial Period Stock Price Analysis

Relevance to Case Study: Displays equity market valuation as a measure of investor perception
of Goldman Sachs during trial period of April 16, 2010 to July 15, 2010.
Appendix B: Goldman Sachs Internal E-mail (November 18, 2007)

Relevance to Case Study: This e-mail, submitted as an exhibit to the U.S. Senate Permanent
Subcommittee on Investigations hearing provides color on the coordination activities within
Goldman Sachs’ media relations department and company executives.
Appendix C: Quick Glossary of Case Financial Terms

Relevance to Case Study: Basic definitions of key financial terms used in case study.
OBLIGED: GOLDMAN SACHS VERSUS THE U.S. SECURITIES AND EXCHANGE
COMMISSION - PAGE 15
Sources and References
Bae, J. & Cameron, G. (February 2006). Conditioning effect of prior reputation on perception of
corporate giving. Public Relations Review. 32, pp. 144-150.
Blodget, H. (December 1, 2009). Goldman Sachs's PR has been a bigger disaster than the exxon
valdez. [Video webcast]. The Business Insider.
Bowley, G. (July 15, 2009). With big profit Goldman sees big payday ahead. The New York Times.
Bowley, G. (October 16, 2009). Bonuses put Goldman in public relations bind. The New York Times.
Broom, G. M., Center, A. H., & Cutlip, S. M. (2005). Effective Public Relations (9th Edition).
Alexandria, VA: Prentice Hall.
Claeys, A-S., Cauberghe, V. & Vyncke, P. (2010). Restoring reputation in times of crisis: an
experimental study of the situational crisis communication theory and the moderating effects of
locus of control. Public Relations Review. 36(10), pp. 256-262.
Clark, A. (March 2, 2010). Lucas Van Praag: Goldman Sachs’s cult PR man. The Guardian.co.uk.
Coburn, T. (July 15, 2010). Financial reform’s empty promises. Real Clear Politics.
Coombs, W. T. (2007). Protecting organization reputations during a crisis: the development and
application of situational crisis communication theory. Corporate Reputation Review. 10(3), pp.
163-176.
Coombs, W. T. & Holladay, S. (2008). Comparing apology to equivalent crisis response strategies:
clarifying apology’s role and value in crisis communication. Public Relations Review. 34, pp.
252-257.
Corkery, M. (May 6, 2010). Lloyd Blankfein is running for re-election. The Wall Street Journal.
Craig, S. & Scannell, K. (July 16, 2010). Goldman settles its battle with the SEC. The Wall Street
Journal.
Davidoff, S. (August 20, 2008). A partnership solution for investment banks? The New York Times.
Davidoff, S. & Henning, P. (July 16, 2010). Weighing the tradeoffs in the Goldman settlement. The
New York Times.
Drawbaugh, K. & Jones, H. (January 6, 2010). Global financial regulation overhaul seen in 2010.
Reuters.
Eder, S. (October 14, 2009). Pressure on Goldman to deal with image problem. Reuters.
OBLIGED: GOLDMAN SACHS VERSUS THE U.S. SECURITIES AND EXCHANGE
COMMISSION - PAGE 16
Egan, M. (February 22, 2010). Report: Goldman Sachs looks to outside public-relations gurus. FOX
Business.
Ellis, C. (2008). The Partnership: The making of Goldman Sachs. New York: Penguin.
Ellis, D. (September 15, 2008). U.S. bank giant Lehman to file for bankruptcy. Cnn.com.
(FCIC) Financial Crisis Inquiry Commission. (January 13, 2010). Testimony by Lloyd C. Blankfein
Chairman and CEO, The Goldman Sachs Group, Inc. [Transcript of speech]. www.fcic.gov.
(FCIC) Financial Crisis Inquiry Commission. (January 13, 2010). The official transcript, the first
public hearing of the Financial Crisis Inquiry Commission. [Transcript of testimony].
www.fcic.gov.
Federal Reserve Bank of St. Louis. The financial crisis: a timeline of events and policy actions.
Retrieved April 14, 2010, from http://timeline.stlouisfed.org/pdf/CrisisTimeline.pdf.#)
Feldman, L. (July 16, 2010). Financial reform bill another win for Obama, but will the public care?
The Christian Science Monitor.
Fidler, J. & Smallman, A. (June 23. 2010). Goldman Sachs may try ad campaign. The Wall Street
Journal.
Goldman, J., & Schmidt, R. (March 24, 2010). Big banks begin effort to improve image, set “record
straight.” Bloomberg.com.
Goldman Sachs. (November 17, 2009). Goldman Sachs launches 10,000 small businesses initiative.
[News Release]. www.goldmansachs.com
Goldman Sachs. (April 16, 2010). Goldman Sachs responds to SEC complaint. [News release].
www.goldmansachs.com
Goldman Sachs. (April 16, 2010). Goldman Sachs makes further comments on SEC complaint. [News
release]. www.goldmansachs.com
Goldman Sachs. (May 14, 2010). Goldman Sachs announces details of Business Standards Committee.
[News release]. www.goldmansachs.com
Goldman Sachs. (July 15, 2010). Goldman Sachs & Co. agrees to settlement with SEC. [News
release]. www.goldmansachs.com
Grocer, S. (June 30, 2010). Has the SEC’s civil suit against Goldman cost it clients? The Wall Street
Journal.
Hitt, G., & Paletta, D. (May 21, 2010). Senate passes finance bill. The Wall Street Journal.
OBLIGED: GOLDMAN SACHS VERSUS THE U.S. SECURITIES AND EXCHANGE
COMMISSION - PAGE 17
Hodgson, J. (September 26, 2010). Goldman Sachs tops global Dealogic M&A advisory rankings.
Dow Jones Newswires.
Jones, A. (July 15, 2010). But who won? Sizing up Goldman’s deal with the SEC. The Wall Street
Journal.
Lica, M. (April 27, 2010). Goldman Sachs Hires PR Mark Fabiani to repair its image. what about
transparency instead? Everything PR.
Morgenson, G. & Story, L. (May 18, 2010). Clients worried about Goldman’s dueling goals. The New
York Times.
PBS (April 27, 2010). Senators vilify Goldman Sachs executives. [Video webcast].
PBS. (April 30, 2010). Lloyd Blankfein, Chief Executive Officer and Chairman of Goldman Sachs.
[Video webcast]. [Television series episode]. In Charlie Rose. Retrieved from
http://www.charlierose.com/view/interview/10989.
PBS. (July 16, 2010). Goldman Sachs update. [Video webcast] [Television series episode]. In Charlie
Rose. Retrieved from http://www.charlierose.com/view/interview/11128.
PBS. (September 13, 2010). Andrew Ross Sorkin, The New York Times. [Video webcast]. [Television
series episode]. In Charlie Rose. Retrieved from
http://www.charlierose.com/view/interview/11202.
Phillips, M. (April 19, 2010). Goldman Sachs vs. the SEC: what fellow wall streeters think. The Wall
Street Journal.
Pressler, J. (November 23, 2009). What should Goldman Sachs’s new PR strategy be? New York
Magazine.
Pressler, J. (February 1, 2010). A short history of Goldman spokesman Lucas Van Praag’s most
withering rebuttals. New York Magazine.
Rappaport, L. (October 18, 2010). Goldman pushes its image rehab. The Wall Street Journal.
Roose, K. (September 29, 2010). In austere era, Goldman workers adopt lower profile. The New York
Times.
Scannell, K., Rappaport, L., & Catan, T. (September 23, 2010). SEC blasted on Goldman. The Wall
Street Journal. Pp. 1, 8A.
Scannell, K. (October 14, 2010). SEC cleared in Goldman case. The Wall Street Journal.
Schnietz, K. & Epstein, M. (Winter 2005). Exploring the financial value of corporate social
responsibility during a crisis. Corporate Reputation Review. 7(4), pp. 327-345.
OBLIGED: GOLDMAN SACHS VERSUS THE U.S. SECURITIES AND EXCHANGE
COMMISSION - PAGE 18
Schmidt, R. (April 27, 2010). Goldman Sachs turns to new lobbying playbook. Bloomberg.com.
Schwartz, D. (April 19, 2010). Oh my! Goldman Sachs uses ‘Public Relations Officers’ to help manage
the crisis. The PR News Blog: PR Newsonline.
Sorkin, A.R. (April 1, 2010). Extreme makeover, Wall Street edition. The New York Times.
Sorkin, A.R. (June 14, 2010). One crowd still loyal to Goldman Sachs. The New York Times.
Starkman, E. (April 26, 2010). Goldman Sachs suffers the perils of PR spin. Forbes.
Story, L. (July 17, 2010). The men who ended Goldman’s war. The New York Times.
Taibbi, M. (April 5, 2010). The great American bubble machine. Rolling Stone Magazine.
Tse, T. M. (April 29, 2010). Goldman Sachs adds to its ranks of lobbyists. The Washington Post.
U.S. Securities and Exchange Commission (SEC). (April 16, 2010). SEC charges Goldman Sachs with
fraud in structuring and marketing of CDO tied to subprime mortgages. www.sec.gov.
U.S. Securities and Exchange Commission (SEC). (April 16, 2010). The SEC charges Goldman Sachs
with fraud in connection with the structuring and marketing of a synthetic CDO. www.sec.gov.
U.S. Securities and Exchange Commission (SEC). (July 15, 2010). Goldman Sachs to pay record $550
million to settle SEC charges related to subprime mortgage CDO. www.sec.gov.
U.S. Securities and Exchange Commission (SEC). The investor's advocate: how the SEC protects
investors, maintains market integrity, and facilitates capital formation. www.sec.gov.
U.S. Securities and Exchange Commission (SEC). (September 2, 2009). The Securities and Exchange
Commission post-Madoff reforms. www.sec.gov.
United States Senate Permanent Subcommittee on Investigations (PSI). (April 27, 2010). Hearing on
Wall Street and the financial crisis: The role of investment banks. [Exhibits].
http://hsgac.senate.gov.
Uslaner, E. (2010). Trust and the economic crisis of 2008. Corporate Reputation Review. 13(2), pp.
110-123.
Yared, Dr. Pierre. Assistant Professor, Finance and Economics, Columbia Business School. New York
City, NY. Personal telephone interview conducted by The Author on November 15, 2010.
Zuckerman, G., Craig, S., & Ng, S. (April 17, 2010). Goldman Sachs charged with fraud. The Wall
Street Journal.