Friday, July 16, 2010

Goldman set to pay $550M to settle civil fraud charges

WASHINGTON — 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 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. 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 the market closed on Thursday and appeared to please investors. Goldman had been trading at about $140 a share. The stock rose to close at $145.22, up $6.16, and shot up to $153.60 in after-hours trading.

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 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.

Goldman acknowledged that its marketing materials for the deal at the center of the charges omitted key information for buyers.

But the firm did not admit legal wrongdoing.

In a statement, Goldman acknowledged 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."

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 settlement is subject to approval by a federal judge in New York's Southern District.

Market fail-safes’ validity in doubtEasy Access to All Mortgage, Closing Costs