As readers know I am somewhat sceptical of the basis of the claims against Goldman Sachs made by the SEC regarding their role as a market maker in a derivatives transaction with IKB and Paulson & Co. Both Paulson and IKB are big boys, more than capable of “fending for themselves” (as the Supreme Court put it in a leading securities law case).

But now a leading class action law firm claims that when Goldman failed to disclose that it had received a so-called Wells Notice from the SEC last summer it was concealing material information from investors and thus misleading them. A Wells Notice is an indication the SEC intends to charge a party with a securities law violation. It is an indication that the party has a last clear chance to settle or explain the situation to try to avoid charges. It seems clear Goldman was unwilling to settle with the Commission (though there is some indication the SEC did not want to settle) so when the SEC filed a complaint against the bank recently it led to a dramatic $10 billion loss in the firm’s market value.

The complaint charges that the firm misled the public into thinking things were just fine and dandy when it knew that was not the case. That would mean that the bank’s stock was trading at artificially high prices. Had the firm shared the news about the Wells Notice then Goldman shareholders could have made up their own minds whether to stick by Goldman. Instead, the law firm claims, Goldman went on a tear trying to convince everyone that everything was just fine and dandy. Goldman CEO Lloyd Blankfein claimed, absurdly, that Goldman was “doing God’s work.”

The problem here is that whether or not the SEC eventually prevails on the underlying charge there is little doubt the market has decided that Goldman’s reputation has taken a huge hit. And when you are a market maker – bringing buyers and sellers of securities together – reputation is everything.

Or, as they say in politics, it’s not the crime that matters, it’s the cover up.