Yes, the merits of the SEC’s case are questionable, and Goldman Sachs ( GS) could likely win a court battle, and easily afford any fine imposed.

The timing of the scandal could hardly be worse.

The current rally is in trouble

1. Fundamental Problems: With the EU debt crisis once again unraveling and China getting more serious about slowing its growth, it has plenty of headwinds
2. Given the above, and that stocks are already at 52 week highs, markets were already selling off after the good earnings announcements Friday BEFORE the Goldman Sachs fraud charges were announced, and, as we warned, is likely to be sold off on anything less than stellar earnings results.
3. Inter-market indicators are also bearish:
   1. Commodities: gold and oil have been forming the beginnings of downtrends (relative to the safer ones) for over a week. Prior to the last stock pullback in late January, gold and oil also were well into their corrections before stocks even got started.
   2. Forex: Over the past weeks, the #1 safety currency, the Japanese yen, has been gaining ground against all major currencies despite the lack of significant positive Japanese economic news, and the aftermath of Japanese exporters' yen buying spurt was over. Thus the yen’s rise can only be due to forex traders seeking defensive forex plays and unwinding riskier carry trades in higher yielding currencies.
   3. The financial sector has lead markets in and out of rallies. This scandal is a likely direct hit on the sector, which is already challenged by widespread but hidden solvency issues and a new round of mortgage resets and spikes in nonperforming real estate loans. Now the sector must also contend with a newly hostile regulatory environment, reduced earnings, soaring legal costs and liabilities. These new threats may ultimately prove manageable, but in the short term they could create tremendous uncertainty for an already stressed sector and stock market.   REST OF ARTICLE HERE