Goldman Sachs to pay SEC $550m over fraud claims

16 July 2010

Goldman Sachs has settled its fraud case with the Securities and Exchange Commission (SEC) by agreeing to pay a $550 million fine to the regulator.

The investment bank was accused of creating a package of subprime mortgage securities which were sold to investors without telling them that the hedge fund Paulson & Co, which helped to create it, was betting on its failure.

While Goldman Sachs has not admitted or denied the SEC's accusations, it did release a statement acknowledging that Paulson & Co's involvement in the selection of the portfolio should have been divulged.

"Goldman regrets that the marketing materials did not contain that disclosure," the firm said.

"We believe that this settlement is the right outcome for our firm, our shareholders and our clients."

Robert Khuzami, director of the SEC's enforcement division, stated that the fine is the largest ever handed to a financial services company in the history of the regulator.

"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," he stated.

Of the $550 million fine, $300 million will go to the Treasury, with the rest being handed back to investors in the collateralized debt obligation (CDO).

As part of the deal, Goldman Sachs will be required to provide additional education and training to its staff in this area of its business.

The investment bank has already begun a "comprehensive, firm-wide" review of its business standards, which the SEC said it took into account when coming to an agreement with Goldman Sachs.

However, the SEC stated that its case against Fabrice Tourre, the Goldman Sachs vice-president involved in marketing the CDO, is to be continued.

By Tony Aynsley

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