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Goldman Sachs SEC case: Is it all about politics?

The Goldman Sachs SEC case, filed Friday, comes as President Obama makes a push for Wall Street reform in Congress.

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The SEC faces its own political pressure – to prove it is on the case of protecting investor interests. The agency is under scrutiny not only because of its role as a Wall Street cop as the financial crisis emerged, but also for failure to catch Ponzi schemes such as those of Bernie Madoff and R. Allen Stanford.

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SEC Chairman Schapiro said Tuesday the agency was "absolutely not" basing its decision on politics, the Associated Press said. In filing the case Friday, the commission said it was also pursuing other possible lawsuits related to the role of complex investment products in the financial crisis.

Goldman Sachs, too, has more at play than just whether the civil lawsuit results in fines or other penalties. Its reputation as the largest and most successful Wall Street investment bank could be at risk. In a business where client relationships and trust mean everything, the SEC is alleging that Goldman failed to disclose material information in one investment deal it set up for clients.

The firm reported strong earnings Tuesday morning, but chief financial officer David Viniar emphasized something much more basic than a $3.46 billion quarterly profit. "Our clients will continue to support us as long as we provide very good service to our clients," he said on a conference call with investors and stock analysts. "We're still doing that."

Goldman's ability to make profits – and to distribute large bonuses to its partners – is also heavily dependent on the regulatory climate in Washington. No Wall Street firm has stronger ties to US politics (two of its recent CEOs have served as Treasury Secretary, while another has been New Jersey governor). Now the political currents seem to be running against firm and Wall Street in general due to the financial crisis and unpopular bailouts.

The lawsuit comes as Wall Street banks including Goldman have been seeking to influence the shape of financial reforms, which Mr. Obama says are needed to prevent future financial crises.

To some financial professionals, the timing of the lawsuit appears to be no coincidence.

"The administration is trying to pass financial regulation reform before the election, and it can’t hurt to let Wall Street know that lobbying against it can be hazardous to your corporate health," Joseph Calhoun of Alhambra Investment Research wrote in a commentary over the weekend.

Goldman's stock value fell 3 percent Tuesday, following double-digit losses in the immediate wake of the SEC suit.