Goldman Battle With SEC Goes Into Overtime

Today was the deadline for Goldman Sachs to file its response to the Securities and Exchange Commission's fraud lawsuit. But instead of responding, Goldman on Friday filed for a 30-day extension.

The extension, to which the SEC has agreed, gives both sides in the lawsuit more time to negotiate a settlement. Perhaps critically, it likely pushes the case out beyond the expected passage of financial reform legislation.

The main contention between the two sides has been over the fraud claims. Goldman is unwilling to settle fraud claims but would likely settle lesser claims of accidentally misleading investors, according to lawyers familiar with thinking at the company.

Not that Goldman would admit to misleading investors; it would just agree to pay a fine—perhaps even a very large fine—while neither admitting nor denying the remaining claims.

The SEC, however, has been under intense criticism for being too lax in the years leading up to the financial crisis. It has managed to hang on to its authority in the financial reform bill now moving through Capitol Hill.

But any impression that it caved to Goldman might result in renewed efforts by lawmakers to narrow the SEC's authority.

The financial reform bill will likely be passed and signed into law in the next few weeks. This means a settlement could come after the threat to the SEC's authority has passed. Lawyers familiar with the matter think the SEC may be more willing to negotiate at that point.

Goldman is still adopting a tough posture. It won't comment further about prospects for settlement. The SEC also will not comment. So it's still possible both sides are headed for court. But once financial reform gets passed, the odds of a settlement will grow.