Lloyd Blankfein on Wednesday attacked the Securities & Exchange Commission’s fraud charges in telephone calls to clients as Goldman escalated its campaign to stem the damage to the bank’s reputation.
One person who received a call from the Goldman chief said he was told the regulator’s case against the bank was politically motivated and would ultimately “hurt America”.
Mr Blankfein mounted the campaign to bolster the confidence of its business partners in the wake of the SEC charges that the bank had sold investors a security designed to fail.
In conversations with private equity executives and others, Mr Blankfein left clients with the impression that he was eager to fight the charges in court. The SEC has requested a jury trial.
“He was very aggressive,” said one person called by Mr Blankfein on Wednesday. “He feels that the government is out to kill them, that they are under attack and the whole thing is totally political.”
Mr Blankfein said the SEC action “hurts America”, this person said.
Mr Blankfein did not initiate talk about the politics or timing of the SEC charge, announced on Friday. A person familiar with the matter said: “Clients brought up the politics . . . and there was a discussion around the context of what happened.”
The Goldman boss’s charm offensive with clients came as it emerged that Fabrice Tourre, the employee also named in the SEC case, would appear with him next week before a US Senate panel investigating Wall Street’s role in the financial crisis.
Mr Blankfein said a female staffer at ACA, the manager of the security, knew that Paulson & Co intended to bet against the transaction, according to a person who was called. This goes against the SEC charges that Goldman failed to disclose that Paulson was taking the opposite side of the deal. Paulson’s short position yielded it a profit of about $1bn while investors who bought into the security lost $1bn, the SEC complaint says.
Goldman this week bolstered its legal team by hiring Greg Craig, a former counsel to the Obama White House. Though Mr Blankfein did not indicate on the calls whether he was considering settling the suit, some clients close to Goldman say they believe it is gearing up for a fight. “They will likely fight aggressively and hope to win clean,” the person said.
SEC staff have said that regulators would seek disgorgement of Goldman’s profits on the transaction as well as penalties and injunctive relief.
Goldman maintains that it made a loss on the transaction. But its argument was hurt by the disclosure on Wednesday that the loss resulted from a failure to sell some positions in the deal.
● The SEC also raised the verbal temperature on Wednesday, as Mary Schapiro, its chairman, issued a statement denying that the Goldman case was part of a political agenda and defending the commission’s independence.
“We will neither bring cases, nor refrain from bringing them, because of the political consequences. We will be governed always and only by the facts and the law,” she said.
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