Goldman Sachs & Co. has agreed to pay $550 million to settle civil fraud charges that accused the Wall Street giant of misleading buyers of mortgage-related investments.
The settlement came on the same day that the Senate passed the stiffest restrictions on banks and Wall Street since the Great Depression.
The deal calls for Goldman to pay the Securities and Exchange Commission fines of $300 million. The rest of the money will go to compensate those who lost money on their investments.
The fine was the largest against a financial company in SEC history. Goldman earned $3.3 billion in the first quarter of this year. It earned $13.4 billion in 2009.
The settlement also requires Goldman to review how it sells complex financial mortgage investments. Goldman acknowledged in a court filing that its marketing materials for the deal at the center of the charges omitted key information for buyers.
The investments were crafted with input from a Goldman client who was betting on them to fail. The securities cost investors close to $1 billion while helping Goldman client Paulson & Co. capitalize on the housing bust.
The civil charges the SEC filed April 16 were the most significant legal action related to the mortgage meltdown that pushed the country into recession.
The SEC said its case continues against Fabrice Tourre, a Goldman vice president accused of shepherding the deal.
“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 Robert Khuzami, the SEC’s enforcement director.
The settlement is subject to approval by a federal judge in New York’s Southern District.
The Justice Department opened a criminal investigation of Goldman over the transactions in the spring, responding to a criminal referral by the SEC. Executives of the firm were strongly questioned and publicly rebuked by senators at a politically charged hearing.