So long, Lloyd.
If U.S. regulators can make their fraud case against Goldman Sachs Group, a house-cleaning is coming at the world's most successful investment bank. Chief executive officer Lloyd Blankfein cannot hope to survive the fallout, nor should he.
Consider how the U.S. market watchdog's claims erode the CEO's credibility. Just a few days ago, Mr. Blankfein used the storied Wall Street firm's annual report to stress that Goldman Sachs puts clients first. The CEO repeatedly denied that the firm profited at the expense of customers during the financial crisis.
Now the Securities and Exchange Commission is charging the opposite was true.
The SEC alleges Goldman Sachs misled clients in 2007 when it sold them mortgage-linked credit products, known as collateralized debt obligations, or CDOs. The SEC claims Goldman Sachs was in cahoots with one favoured fund manager - hedge fund Paulson & Co. - in creating portfolios that Paulson & Co. helped select, then bet against it, and none of this was disclosed.
As is the now the norm in these cases, there are incriminating e-mails. The SEC is also coming after Fabrice Tourre, a London-based Goldman Sachs vice-president who regulators allege created the CDOs. Mr. Tourre has the endearing habit of referring to himself as "Fab" in e-mails.
Here's one beauty from the financier on the subject of CDOs that's contained in the SEC charges: "Only potential survivor, the fabulous Fab standing in the middle of all these complex, highly leveraged, exotic trades he created without necessarily understanding all of the implications of those monstrousities!!!."
Now, Goldman Sachs is clearly going to fight these claims. The investment bank said Friday: "The SEC's charges are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation."
(One unexpected consequence of this scandal: there's speculation in banking circles that Goldman Sachs professionals, frustrated with the public drubbing they are taking, will take the firm private.)
If the SEC wins this battle, here's what Mr. Blankfein faces: At the very least, Goldman Sachs' CEO will be guilty of failing to supervise his team. One of the best-paid executives in Wall Street's history will have been on the bridge when his crew engaged in deceptive practices while dealing with clients.
At worst, this scandal will move up the food chain, and the regulator will be able to show that senior Goldman Sachs employees approved the approach used in creating these CDOs. Such a finding would mean heads roll at 85 Broad Street in New York.