Goldman Sachs & Co has agreed to pay $550 million to settle civil fraud charges that the Wall Street giant misled buyers of mortgage-related investments. The settlement was announced by the Securities and Exchange Commission (SEC) on Thursday.
The deal calls for Goldman to pay a $535 million fine and $15 million in restitution of fees it collected. Of the total $550 million, $300 million will go to the government and $250 million goes to compensate two banks that lost money on their investments.
The penalty was the largest against a Wall Street firm in SEC history.
Word that Goldman had settled began leaking about a half-hour before stock markets closed Thursday. The stock rose to close at $145, up $6.2, and shot up to $152 in after-hours trade.
The settlement involves charges that Goldman sold mortgage investments without telling buyers that the securities had been crafted with input from a client that was betting on them to fail. It cost investors close to $1 billion while helping Goldman client Paulson & Co. capitalise on the housing bust.
Goldman said in a statement that "it was a mistake" for the marketing materials to leave out that a Goldman client helped craft the portfolio and that the client's financial interests ran counter to those of investors.