Goldman Sachs (NYSE: GS), a major player in the IPO market received important news: they remain a qualified issuer.
After the firm agreed to settle a fraud case with the Securities and Exchange Commission, doubts were raised if they would be permitted to continue offering securities. As it turns out, they are. The S.E.C wrote in a letter to Goldman’s legal counsel at Sullivan & Cromwell that the settlement reached earlier this month clears a path for the firm to continue issuing securities under federal regulations. As one of the world’s largest occupants of the league tables, Goldman would have been in serious jeopardy had they been restricted. Investment banking revenue remains an important, if volatile, component to the bank.
Under federal securities laws (and specifically Rule 405), the commission can deem a firm an “ineligible issuer” if within the past three years the brokerage had broken S.E.C. regulations. Nearly two weeks ago, a settlement was announced between Goldman and the SEC that the firm would pay $550 million and admit mistakes in its marketing materials. By agreeing to this, the firm was able to not admit to the wrong doing alleged by the S.E.C regarding the mortgage linked investments.
Jonathan A. Ingram, deputy chief counsel for the S.E.C.’s division of corporate finance, wrote: “Based on the facts and representations in your letter, and assuming the company and the firm comply with the final judgment, the Commission, pursuant to delegated authority has determined that the company has made a showing of good cause under Rule 405(2) and that the company will not be considered an ineligible issuer by reason of the entry of the Final Judgment.”
With the fraud case and settlement now behind them, Goldman can turn it’s attention to where it is most needed: Trading. In the second quarter earnings release we saw the firm uncharacteristically miss their earnings estimate, and attributing that mostly to underperformance on the firm’s trading desks. With investment banking pipelines picking up, and invest confidence rising, the third quarter may be much better news then the second quarter proved to be.
