Goldman Sachs
On April 16, Goldman (NYSE: GS) was hit with fraud charges for failing to disclose material information in its marketing of a synthetic CDO known as Abacus 2007-AC1. The SEC is charging that the firm neglected to inform investors that hedge fund manager John Paulson heavily influenced the collateral selection and also bet against it.

While some consider Goldman's actions to be legal, few, if any, deem them ethical. A major concern is that Goldman continues to place its own interests before those of its clients. Goldman's CDO practices, especially those used in the Abacus deal, expose a firm that embraces conflicts and engages in trades that significantly oppose the interests of many of its clients. As a result, members of the financial industry have started to disfavor the firm, evidenced by AIG replacing the firm as it main corporate advisor and credit rating agency Fitch Ratings dropping its evaluation from stable to negative. In an attempt to salvage its reputation and retain clients, Goldman has formed a business standards committee to examine the firm's ethics, client relationships, and conflict management, among others. But the committee must deliver more than just theatrics to regain the favor of regulators, investors and the public.

Securities and Exchange Commission
The SEC (SEC news) has been trying to recover from its regulatory failure surrounding the Bernard Madoff and Allan Stanford Ponzi schemes for quite some time. The agency's regulatory actions have once again come under scrutiny after it filed a civil suit against Goldman Sachs for misleading investors in a synthetic CDO deal. The SEC has yet to officially serve Goldman, giving the bank an additional 60 days to file either a motion to dismiss or answer the complaint with its defense of the charges, although settlement negotiations are underway.

Overall, the agency has done an inferior job of policing the markets. But with Goldman, the SEC is finally taking action to reproach the type of violations that triggered the financial crisis. The Goldman lawsuit represents a move toward financial reform as the agency is finally holding major firms accountable for corporate abuses. The SEC is clearly turning a corner in the PR game--proving it is effectively monitoring the markets and willing to put some bite behind its bark.