Goldman civil fraud settlement is $550M
WASHINGTON — Resolving a high-profile government case linked to the mortgage meltdown, Goldman Sachs & Co. agreed to pay a record $550 million to settle civil fraud charges that it misled buyers of complex investments.
The Securities and Exchange Commission announced the settlement Thursday with the Wall Street titan, just hours after Congress gave final approval to legislation imposing the stiffest restrictions on banks and Wall Street firms since the Great Depression.
For Goldman, it was a chance to put behind it a case that had tarnished its reputation after it emerged relatively unscathed from the financial crisis. For the SEC, emerging from the embarrassment of a series of lapses, the settlement was a high-stakes opportunity to prove it could be tough on Wall Street.
And the agency's sweeping investigation of the conduct of financial firms in the run-up to the mortgage market collapse could bring more cases.
Robert Khuzami, the SEC's enforcement director, called the settlement 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 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 European banks that lost money on their investments.
The penalty was said to be the largest against a Wall Street firm in SEC history. But the settlement amounts to less than 5 percent of Goldman's 2009 net income of $12.2 billion after payment of dividends to preferred shareholders — or a little more than two weeks of net income.
Word that Goldman had settled began leaking about a half-hour before stock markets closed and appeared to please investors. Goldman stock shot up to $151.95 in after-hours trading.
The SEC had alleged Goldman sold mortgage-related investments without telling buyers the securities had been crafted with input from a client that was betting on them to fail.
