Securities Law

Goldman Sachs to Pay Record $550M to Settle SEC Suit re Claimed Mortgage-Related Fraud

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Accused of misleading investors when it foresaw the mortgage meltdown and offered toxic mortgage-related securities that hedged against it, Goldman Sachs has agreed, without admitting liability, to a record payment of $550 million.

The banking titan was sued by the U.S. Securities and Exchange Commission in April. Of the $550 million, a total of $300 million will be paid to the Treasury Department and the result will go to investors, reports the Dealbook blog of the New York Times.

The federal district court in Manhattan must still approve the settlement before it is final. Although Goldman Sachs isn’t admitting liability, it is agreeing that it provided incomplete information to investors in marketing materials.

“Half a billion dollars is the largest penalty ever assessed against a financial services firm in the history of the SEC,” its enforcement director, Robert Khuzami, says in a written statement. “This settlement is a stark lesson to Wall Street firms that no product is too complex, and no investor too sophisticated, to avoid a heavy price if a firm violates the fundamental principles of honest treatment and fair dealing.”

The SEC says investors lost more than $1 billion.

Additional and related coverage: (April 2010): “SEC Accuses Goldman Sachs of Selling Mortgage Investment Designed to Fail” (May 2010): “NY AG Probes Whether Banks Gave Misleading Information to Ratings Agencies”

Money & Company (Los Angeles Times): “Goldman agrees to settle fraud case with SEC, will pay $550 million”

Wall Street Journal (sub. req.): “Goldman to Pay $550 Million to Settle SEC Suit “

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