Last month, Goldman was granted a thirty day-extensionto respond to the SEC’s lawsuit, pushing the deadline to Monday, July 19. Goldman filed for that extension the Friday before June deadline, which also fell on a Monday.
It’s likely that Goldman will follow the same pattern here—submitting a filing to the court on the Friday before the deadline.
Goldman’s response could take one of three forms: a request for another extension, a settlement proposal agreed with the SEC, or a substantive legal brief denying the charges.
It is likely that Goldman will file a request for another extension, a person familiar with the thinking of Goldman’s lawyers said. The new extension would be an indication that Goldman is working with the SEC to settle the case.
“The best bet now is that they extend and befriend, hoping to work out a settlement during the summer doldrums,” a prominent securities lawyer who is not involved with the case said. (He asked not to be identified because his firm does business with both Goldman and the SEC.)
Lawyers for Goldman have reportedly met recently with the SEC to propose settlement terms. The company has been trying to get the SEC to drop fraud charges, which Goldman believes are a black mark on its reputations and which would allow outside plaintiffs to bring private-actions. Goldman insiders say that as long as the fraud charges remain outstanding, Goldman is unwilling to agreement to a deal in which it neither admitted nor denied the charges.
It’s not clear whether the SEC is willing to agree to a settlement that would drop the fraud charges.
Other factors also complicate a possible settlement. Some analysts have said the fine Goldman might have to pay in a settlement could be as large as $1 billion, more than twice the largest fine ever paid to settle an SEC case. Goldman may be reluctant to set this kind of record, a person said.
SEC reportedly would like to preserve the right to bring new lawsuits against Goldman if it uncovers further evidence of alleged wrongdoing related to the existing case. Goldman would prefer a broader settlement that dispatched the worries over its Abacus derivatives deals once and for all, according to a person familiar with the matter.
Goldman’s posture seems to have softened over the last month. When the SEC filed the case against Goldman in April, Goldman lashed out at the regulator, describing the case as having no basis in fact or law. As late as last month, Goldman still appeared to be taking a tough stance, quietly indicating that it was preparing to take the case to court. Reports of recent settlement talks seem to indicate that the company is no longer girding for battle.
Earlier this week, people familiar with the matter told CNBC that a settlement was still very much a work-in-progress that was unlikely to be completed by the Monday deadline. It’s possible, however, that more progress than expected has been made this week.
Another factor complicating settlement talks is the SEC’s need to satisfy lawmakers and the judge in the case. Lawmakers on Capitol Hill have been highly critical of Goldman, making the SEC wary of seeming to treat the company too kindly. And the SEC is still stinging from public rebukes from the judge who accused the Commission of being too eager to settle a case against Bank of America.