Goldman Sachs (GS) has lost more than $21 billion of market value since the SEC filed its fraud charges two weeks ago.
Today’s news that the Justice Department has opened a criminal probe into the company knocked off $8 billion of that.
Boards of directors pay attention to these things, as do shareholders. (Believe me–I speak from experience on this one.)
Paying the SEC a $1+ billion fine to settle charges that lots of folks believe are not supported by the evidence will be galling and humiliating for Goldman. But compared to the amount of value the firm has lost since the charges were filed–not to mention the humiliation it has endured–this is a pittance.
Whatever resolve there was within Goldman to fight the charges the day the SEC’s lawsuit was filed is almost certainly evaporating.
As Goldman’s market value collapses, meanwhile, the more leverage the SEC has and the more expensive the settlement is likely to be.
Now that the Justice Department is looking at the evidence, moreover, Goldman has a new incentive to settle quickly: A major fine and act of public contrition on Goldman’s part would satisfy some of the public bloodlust that the Senate panel capitalised on earlier this week. It could also ease the pressure on prosecutors to file criminal charges against the firm.
Further defiance and insistence by Goldman that it has done nothing wrong, meanwhile, will further inflame the public. And it will also likely raise the pressure for prosecutors to comb more deeply though the company’s records to find something, anything, to hang criminal fraud charges on.
Goldman did get some good public-relations licks in over the past two weeks. But perception is reality, and Goldman has now lost the perception war. So it’s time to reach for the checkbook.