The SEC said Goldman Sachs & Co. will pay a $550 million fine, the largest penalty ever paid by a Wall Street firm, to the agency, and reform its business practices to settle charges that it misled investors in a subprime mortgage product.
In its April 16 complaint, the SEC alleged that Goldman misstated and omitted key facts regarding a synthetic collateralized debt obligation it marketed that hinged on the performance of subprime residential mortgage-backed securities. Goldman failed to disclose to investors vital information about the CDO, known as ABACUS 2007-AC1, particularly the role that hedge fund Paulson & Co. Inc. played in the portfolio selection process and the fact that Paulson had taken a short position against the CDO, the SEC said.
Goldman agreed to settle the SEC's charges without admitting or denying the allegations by consenting to the entry of a final judgment that provides for a permanent injunction from violations of the antifraud provisions of the Securities Act of 1933. Of the $550 million to be paid by Goldman $250 million would be returned to harmed investors through a Fair Fund distribution and $300 million would be paid to the U.S. Treasury.
In agreeing to pay the penalty, Goldman also acknowledged that its marketing materials for the subprime product contained incomplete information.