The number one rated analyst covering brokerage firms, Brad Hintz, is telling his clients that if Goldman Sachs committed any crimes by misleading its clients about mortgage-backed securities, the firm will will be offered a “slap on the wrist” deal called “deferred prosecution” because it is viewed as “too big to fail,” according to Christine Harper’s Bloomberg article entitled “Goldman Sachs ‘Too Big’ to Face Criminal Prosecution, Hintz Says.” In other words, if a brokerage firm is going to be bad, it pays to be very big and very bad.
“If an alleged violation is identified during a Goldman investigation, we expect a reasoned response from the Justice Department,” Hintz was quoted as saying, adding: “In a worst case environment, we would expect a ‘too big to fail’ bank such as Goldman to be offered a deferred-prosecution agreement, pay a significant fine and submit to a federal monitor in lieu of a criminal charge.”
Under a deferred-prosecution agreement, the government files charges but agrees to dismiss them, typically after the company pays a fine or penalty and improves its governance or other practices. Last October, the Justice Department dismissed a conspiracy case against Switzerland’s largest bank, UBS AG, after the expiration of an 18-month deferred prosecution agreement.
Hintz said that the Justice Department changed its approach after Arthur Andersen LLP collapsed following a felony charge. Now, “the targeted company is treated not as a hardened criminal but as the equivalent of a juvenile offender that can be reformed,” Hintz reportedly wrote.
Despite the expected “kid glove” treatment, Hintz sees trouble ahead for Goldman. “As politicians continue to criticize the firm and the public scrutiny persists, we believe that Goldman’s clients will begin to rethink their relationship with the firm and the franchise will ultimately suffer,” he was quoted as writing.
In July, 2010, Goldman Sachs agreed to pay a record fine of $550 million to settle a civil fraud suit by the U.S. Securities and Exchange Commission alleging that the firm misled clients about mortgage-backed securities. Ms. Harper observed: “The settlement, in which the company also admitted to making a ‘mistake,’ was agreed to three months after the firm’s statement that the allegations ‘are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation.'”
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