BREAKINGVIEWS-Goldman resets risk limits for Epstein trades

By Stephen Gandel and Jeffrey Goldfarb

NEW YORK, Feb 13 (Reuters Breakingviews) - The Jeffrey Epstein trade that paid out for years is going bust. After Goldman Sachs GS.N CEO David Solomon backed top lawyer Kathy Ruemmler, despite her links to the late sex offender, she is now leaving. It's worth tracking such value assessments from a Wall Street firm renowned for weighing risk and reward.

Ruemmler became the latest flashpoint in a scandal that has already cost former Barclays boss Jes Staley, Apollo Global Management founder Leon Black, and onetime U.S. Treasury Secretary Larry Summers their jobs and reputations. Both Goldman and its general counsel were clearly feeling pressure. She had her own personal spin doctors and Solomon publicly expressed support for her this week.

His decision indicated that Ruemmler's worth as a trusted adviser offset potential blowback from the $275 billion investment bank's employees and clients. The conclusion in many ways befits Goldman, which has a long history of coming out ahead after carefully calculating probable outcomes, both on the trading floor and in the boardroom. Solomon himself weathered a storm a few years ago and has gone on to lead a resurgence at the firm.

In Ruemmler's case, there were sticky matters to consider. Her name appears often in Epstein files released by the U.S. Department of Justice and Congress, regularly communicating with the disgraced financier years after he pleaded guilty to soliciting prostitution from a minor in 2008. He showered her with lavish gifts; she offered advice on legal matters and polishing his image.

There's no evidence that Ruemmler broke any laws or overstepped professional rules. Questionable counterparties are a regular hazard on Wall Street. She says the decision to leave is her own, because the matter was becoming a distraction, not for any misdeed. It's unclear whether Solomon encountered internal dissent, but he says he accepted her resignation reluctantly.

Plenty of others in power crowded into the Epstein trade. Often, these rich individuals and their employers have tried to cut their losses by professing ignorance or downplaying concerns about rectitude. Among those connected to Epstein in various ways and remaining in prominent roles are Mary Erdoes, JPMorgan's head of wealth and asset management; Ariane de Rothschild, who runs her family-owned Swiss bank; and President Donald Trump.

Value judgments are changing apace. This month, Epstein fallout led to the decampment of Dubai-based ports operator DP World's CEO, Slovakia's national security minister and Brad Karp as chair of law firm Paul Weiss. Many more would be wise to revisit their pain-tolerance thresholds.

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CONTEXT NEWS

Goldman Sachs General Counsel Kathy Ruemmler said on February 12 that she would leave the investment bank on June 30 because the attention on her relationship with sex offender Jeffrey Epstein while she was in private practice was becoming a distraction.

CEO David Solomon on February 11 backed Ruemmler after the extent of her ties to Epstein from 2014 to 2019 was revealed in recently released U.S. Department of Justice and congressional files.

Solomon said in a statement that Ruemmler was an "extraordinary" top lawyer for Goldman and that she would be missed.