WASHINGTON - Goldman Sachs & Co. has agreed to pay $550 million to settle civil fraud charges that accused it of misleading buyers of mortgage-related investments.
The fine was the largest against a financial firm in Securities and Exchange Commission history.
"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 involves charges that Goldman sold mortgage investments without telling buyers that the securities were crafted with input from a client that was betting on them to fail.
The deal calls for Goldman to pay the SEC fines of $300 million. The remaining $250 million will go to the two big losers in the deal. German bank IKB Deutsche Industriebank AG will get $150 million. Royal Bank of Scotland, which bought ABN AMRO Bank, will receive $100 million.
The securities cost investors close to $1 billion while helping Goldman client Paulson & Co. capitalize on the housing bust, the SEC said in the charges filed on April 16. It was the most significant legal action related to the mortgage meltdown that pushed the country into recession.
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.
Goldman, which did not admit legal wrongdoing, will also pay back $15 million in fees it collected for managing the deal.
The SEC said its case continues against Fabrice Tourre, a Goldman vice president accused of shepherding the deal. Paulson was not charged by the SEC. - AP