The world assumes that Goldman Sachs (NYSE: GS) has begun settlement discussions with the SEC (SEC news), regarding the charges that it fraudulently sold a collateralized debt obligations (CDO news) to unsuspecting customers. How much would it cost the firm? The estimates have ranged from $1 billion up to $5 billion.

CNNmoney.com reports that a settlement of more than $1 billion would rank as the largest SEC settlement in the post-Sarbanes-Oxley (Sarbox news) era, eclipsing the $800 million AIG (AIG news) paid to settle claims related to misstatement of financial results in 2006. But whether it pays $1 or $5 billion, it will not impose much hardship on the firm, given that its profits will far exceed the price.

The real issue is what kind of business practices the SEC will impose on the firm? Will it ask for a lot of extraneous disclosure? For a special monitor to oversee deals? For various Chinese walls? Will it ask for corporate governance changes? We'll just have to see. A lot is at stake for Goldman Sachs but for other firms as well if the SEC decides to make the settlement a template of sorts for other settlements. 

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