While settlement talks between Goldman Sachs (NYSE: GS) and the SEC (SEC news) have heated up, it's unclear how close they are to an actual agreement. For both sides, there are some potential problems.

For Goldman Sachs, it will be imperative to not admit any sort of guilt on a fraud charge. That would impact business in a huge way. The SEC knows this, and perhaps has some leverage. I still maintain that the firm will be able to settle eventually without admitting or denying guilt, which, rightly or not, is standard.

The bigger issue is likely to be money. The media has seized on $1 billion as the magical figure, which may seem high to some. But when you consider that investors in the CDO (CDO news) in question lost $1 billion, it may seem about right. Some have put the settlement figure at closer to $5 billion, but that doesn't seem likely.

The SEC is all too aware that it must eventually get its deal through a federal judge. It was spectacularly unsuccessful in trying to convince Judge Jed Rakoff to approve the initial $33 million deal. It can't be seen as too lenient. The SEC may have more success with a judge if it can wrangle some meaningful structural reforms from Goldman Sachs. 

For more:
- here's an overview from a WSJ blog

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