WASHINGTON At first glance, the $550 million settlement looked like a victory for Goldman Sachs and a blow to the Securities and Exchange Commission and its ambitious charges against the Wall Street titan.
But a closer look suggests the SEC played a relatively weak hand pretty well.
The settlement, over charges that Goldman marketed a subprime mortgage product fraudulently, was little more than a slap on the wrist for the investment bank financially. No heads have rolled and the internal changes to which it agreed were relatively modest.
The bar was high, though, to prove fraud, and Goldman's admission that it made a mistake when marketing a subprime product is rare in such deals. Even a few billion in fines would seem like a pittance to Goldman.
"They took on the biggest investment bank in the world, charged it with fraud, received a settlement in excess of half a billion, and a concession that Goldman omitted significant facts," said Harvey Pitt, a former Republican chairman at the agency. "It's a huge win for the SEC."
Already, Royal Bank of Scotland has said it may pursue Goldman for substantially more than a hundred million dollars, and other banks are anxiously waiting to see if they are next in line for SEC scrutiny. Also, the civil deal makes it less likely the government will pursue a criminal case, some lawyers said.
"The SEC has determined that a settlement in which Goldman admits no fault is acceptable, and a federal prosecutor would be wary of appearing to question that judgment," said Glen Donath, former prosecutor and now partner at Katten Muchin Rosenman.
Securities lawyers including former SEC officials were surprised that the agency, which in recent years has been criticized as weak and ineffective, forced Goldman to admit it made a mistake.
"It is a departure from the usual practice that defendants settle without admitting or denying any substantive facts, and could signal a very ominous trend if it becomes more common in the future," said Russell Ryan, former assistant enforcement director at SEC and now partner at law firm King & Spalding.
Goldman was accused of hiding from investors that prominent hedge fund Paulson & Co was betting against a subprime product -- Abacus-2007-AC1 -- hedge fund manager John Paulson helped create.
In announcing the deal, the top SEC enforcement officials were quick to point out that the SEC insisted on the language that Goldman made mistakes in marketing.
Goldman has said all along it did not commit fraud.
The SEC's case was tough to prove. It was brought with only the support of the SEC Chairwoman Mary Schapiro and two Democrats on the panel -- a rare split, especially for such high-profile ones.
It also underlines the resolve of Schapiro, appointed by President Barack Obama, who showed she would push through actions without unanimity among the commissioners.
The two Republican SEC commissioners, Troy Paredes and Kathleen Casey, voted against the Goldman deal, sources said on Thursday. They also dissented when the SEC filed the charges.
Several lawyers said it would be a risky case to take to a jury, in part because of its complicated nature.
"The SEC took a hard look at its evidence against Goldman and concluded it may have risks if it proceeded to trial," said Robert Heim, a former regional director in the SEC's enforcement unit.
At the same time, the agency delivered a major black eye to the reputation of a firm that seemed almost untouchable.
"They stake their reputation on their integrity and there were serious questions raised by the accusations," said James Cohen, law professor at Fordham University.
If a federal judge approves the settlement as expected, it will represent an accomplishment for SEC enforcement chief Robert Khuzami and his staff.
The former federal prosecutor was hand picked by Schapiro to help restore the agency's reputation after it was humiliated for failing to stop Bernard Madoff's $65 billion fraud.
Goldman, of course, gets to put the whole affair behind it with little admission of wrongdoing and a small fine.
"It preserves their story that it was just a mistake, but it in no way is it implicitly conceding that this is fraud," Donald Langevoort, a former SEC official said.
MORE TO PROVE
But the SEC still has a lot more to prove and is under pressure from critics who say the agency was asleep at the wheel in missing big scams in recent years, like Madoff's Ponzi scheme.
Many now look to the new powers given the SEC in the landmark financial overhaul bill Obama will sign next week.
"We'll have to see how tough the SEC is on rulemaking, whether it is really going to be able to oversee the systemic risks in the financial system," Heim said.