Goldman Sachs to pay record $550M to settle subprime fraud charges

04:59 PM 5

Settling fraud charges of misleading investors with a subprime mortgage product, Goldman Sachs has agreed to pay $550 million, the largest-ever penalty against a Wall Street firm, the Securities and Exchange Commission has announced.

Goldman admitted that it concealed the role that hedge fund Paulson & Co. played in the complex investment known as a synthetic collateralized debt obligation. Paulson helped select the portfolio for the CDO that was sold to investors and then bet that its value would fall. All this happened just as the U.S. housing market was imploding in 2007 as the subprime mortgage market collapsed. In April, the SEC accused Goldman of omitting and misstating facts about Paulson's involvement. He and his firm were not charged.

"Half a billion dollars is the largest penalty ever assessed against a financial services firm in the history of the SEC," said Robert Khuzami, the SEC's head enforcer. "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."

Here's the consent decree and more about the case.

http://www.usatoday.com/communities/ondeadline/Index