Goldman Stalls as Market Wrestles With Case

Goldman Sachs shares gave up early gains as investors sifted through fresh details regarding the complex fraud charges brought against the firm by the SEC.
By Dan Freed ,

NEW YORK (

TheStreet

) --

Goldman Sachs

(GS) - Get Report

shares quickly surrendered early gains Tuesday as investors sifted through fresh details regarding the complex fraud charges brought against the bank by the

Securities and Exchange Commission

.

Given the severe selloff that greeted the announcement of the case on Friday, it was somewhat surprising to see investors initially focusing on earnings. As usual,

Goldman reported blowout numbers

with the securities firm turning in a profit of $5.59 per share versus the

Thomson Reuters

average analysts' estimate for a profit of $4.01 per share.

In what was surely an attempt to defuse public anger over the fact that Goldman continues minting money in the face of 10% unemployment, Goldman set aside just 43% of its $12.78 billion in revenues for compensation purposes -- a record low for the firm.

On an 8 a.m. conference call with analysts CFO David Viniar, who usually handles analyst questions on his own, was joined by Greg Palm, Goldman's general counsel, who was there to discuss the SEC case.

Viniar got a surprising number of questions in the early going, and the questions analysts put to Palm were fairly deferential at first.

Deutsche Bank analyst Michael Carrier, for example, appeared to side with the pro-Goldman view that the case is more politics than substance.

"I guess when we look at the SEC process, this is very unusual relative to how they usually operate," Carrier said as a preface to one question.

But later on the call, analysts including David Trone of Macquarie Research took a more aggressive stance. Trone asked Palm what ACA Capital Management, an investor that the SEC alleges was duped by Goldman on the deal, thought was the role of Paulson & Co. By its own admission, Goldman

introduced the two sides

, but the SEC has faulted Goldman for not letting ACA know Paulson, which was short on the deal, apparently played a key role in putting the synthetic CDO transaction together.

When Palm said he could not "speculate," as to what ACA thought was the role of Paulson, Trone sounded incredulous.

"How could you not know what -- you were the broker; you

brought the parties together.

"

Palm's reply contained what may be the only certainty about the highly complex case at this point.

"We're at the beginning of this litigation. And as I said at the beginning, our view of the facts is different from the SEC's view of the facts, and the case will proceed."

Exchanges like these -- difficult and at times tense -- continued during the call, and investors reconsidered their initial enthusiasm. The stock was solidly in positive territory near $167 two minutes after the open, but twelve minutes later it had fallen below $161 and as of late morning had not been able to muster a recovery.

--

Written by Dan Freed in New York

.

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