Goldman Sachs agrees $550 million settlement
Embattled US bank Goldman Sachs will pay a record $550 million to settle government fraud charges, the Securities and Exchange Commission said on Thursday.business Updated: Jul 16, 2010 13:14 IST
Embattled US bank Goldman Sachs will pay a record $550 million to settle government fraud charges, the Securities and Exchange Commission said on Thursday.
Facing allegations of defrauding investors, the storied investment bank admitted it had made a "mistake" and given "incomplete" information to clients.
The SEC had accused Goldman of allowing a prominent hedge fund -- Paulson & Co. Inc -- to put together a package of subprime mortgages that were sold to clients, but which Paulson was also betting against.
"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," said SEC prosecutor Robert Khuzami.
The firm had said it would "vigorously contest" the charges and "defend the firm and its reputation."
But in a statement on Thursday it acknowledged marketing materials for the product "contained incomplete information."
"It was a mistake for the Goldman marketing materials to state that the reference portfolio was 'selected by' ACA Management LLC without disclosing the role of Paulson & Co. Inc. in the portfolio selection process."
Goldman will pay $300 million to the Treasury and 250 million to investors.
Among clients of Goldman's controversial product were German commercial bank IKB and Britain's RBS.
Goldman claimed that it lost $90 million from its own investment in the security.
The type of mortgage-backed securities sold by Goldman in the deal were a key contributor to the financial crisis that peaked in 2008 because many contained risky mortgages.
The trade, which took place during a massive mortgage meltdown in 2007 and as the country was about to fall into a brutal recession, was said to have cost investors around one billion dollars.
Goldman reportedly made billions of dollars by betting against the housing market in the years before its collapse.
"Half a billion dollars is the largest penalty ever assessed against a financial services firm in the history of the SEC," said Khuzami.
The fraud allegations had rattled markets around the world and sent the company's stock plummeting.
Goldman was among the top gainers in US stocks on Thursday, its shares rising 4.43 percent to $145.22 by the close of trade and a further five percent in after-hours trade.
After the settlement was announced Goldman said the deal was the "right outcome for our firm, our shareholders and our clients."
The firm also said that watchdogs had reviewed similar trades and that SEC staff did "not anticipate recommending any claims against Goldman Sachs or any of its employees with respect to those transactions based on the materials it has reviewed."