The cost of doing business for Goldman Sachs …

July 15, 2010

Robert Khuzami made a splash, as intended, today when he announced the biggest Wall Street penalty in the SEC’s history, a $550 million deal with Goldman Sachs (GS). We’re just not sure the long-term view will be as kind.

The blogosphere has been quick to blast the deal as too little, too soon. Goldman shares actually rose after the announcement, though it’s impossible to know whether that’s from relief over the fact of a settlement — any settlement — or giddy joy over its size.

Here at footnoted, we did what we do best: We went to the filings to find some measure of comparison. We found a few, and they aren’t pretty.

Goldman had $27 billion in cash and short-term securities on March 31, according to its latest 10-Q. That means the settlement, at barely 2% of the total, is in fact pocket change for the company. For a household with net worth of $60,000, the equivalent percentage works out to $1,219 — not trivial, but hardly a major expense.

Like many companies, one of Goldman’s most significant recurring expenses is its personnel. It accrued compensation and benefits expense of $5.49 billion in the first quarter — 10 times what it’s paying out to settle this case.

And finally, the one that puts both Wall Street pay and the penalty onto a human scale: Since the beginning of Goldman’s 2007 fiscal year, Lloyd Blankfein and four other men (the company’s other top-paid officers) have made more than $288 million among them, according to Goldman’s proxy — or about 52% of the penalty amount. In other words, those five men could probably scrape together enough to pay the fine themselves.

All told, not terribly impressive. But there’s also the SEC’s perspective. Obama asked Congress for $1.26 billion to fund the agency for fiscal 2011, an increase of about $139 million over fiscal 2010 — and just barely double what Goldman will shell out without breaking a sweat. This speaks volumes about the resources available to Wall Street’s beat cops.

So from the SEC’s perspective, Khuzami hooked a whale. From Goldman’s, it’s more like a minnow. Which view matters when it comes to deterring future bad behavior?

Image source: dawnzy58 via Flickr

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