Obliged: Goldman Sachs vs.

The U.S. Securities and Exchange Commission

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

Synopsis of Case Study

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.

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 Summary Chronology

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)

2009

3/17/08 – Fall of Bear Stearns,

purchased by J.P. Morgan for

$236 million

9/15/08 – Lehman Brothers

files for bankruptcy, Bank of

America buys Merrill Lynch

10/3/08 – $700bn Federal

bailout passed

3/16/09 – AIG bonus scandal

2008

A Financial Crisis for Financial Institutions

9/16/08 – Government buys

80% of AIG9/26/08 – 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

2008

Figure by The Author

Sources: The Wall Street Journal, The New York Times, Reuters, Bloomberg, www.sec.gov

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

A Brief Timeline

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

20092009

• 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)

1970–2008 - $347.5 billion 2008 - $1.7 trillion

History of U.S. Bailouts

(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 • 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)

“The SEC’s charges are completely

unfounded in law and fact and we will

vigorously contest them and defend the

A One Sentence News Release

vigorously contest them and defend the

firm and its reputation.”

- Goldman Sachs news release dated April 16, 2010.

• 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

The U.S. Securities and Exchange Commission

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 Stakeholder U.S. Government

PublicsSEC

The Federal Reserve

U.S. Congress

U.S. Treasury Department

Federal Crisis Inquiry Commission

“The Economy”

Regulation (Securities Acts, SEC Enforcements)

Legislation (Dodd-Frank Act, TARP)

Stakeholder

PublicsTax-paying citizens

Clients

Shareholders / Investors

Protections ����

Feedback

Figure by The Author

GS Revenue Mix

GS Stock Performance - Crisis

GS Stock Performance - Trial

The Author wishes to thank Dr. Pierre

Yared, Columbia University Business

School Assistant Professor of Finance and

economics for his guidance on this project

Acknowledgements

economics for his guidance on this project

obtained in a personal telephone interview

with The Author on November 15, 2010.