GOLDMAN SACHS has agreed to pay $550m (£356m) to settle civil fraud charges over how it marketed a subprime mortgage product, ending months of negotiations that rattled the bank’s clients and weighed on its share price.
The investment bank has now paid the largest-ever penalty by a Wall Street firm to the Securities and Exchange Commission (SEC).
But many investors viewed the $550m settlement as just a slap on the wrist for a bank that earned more than $13bn last year.
The settlement appears to leave the door open for additional enforcement actions by the SEC and further investigation by federal prosecutors.
The SEC accused Goldman of creating and marketing a debt product linked to subprime mortgages without telling investors that a hedge fund helped choose the underlying securities and was betting against them.
Goldman acknowledged as part of the settlement that its marketing materials were
incomplete, but it did not admit or deny the allegations. The settlement appears to only
resolve the issue of this transaction in particular.
It is understood that Goldman had pressed regulators to agree to a global settlement, which would effectively have ended any SEC investigations into other collateralised debt obligations underwritten or marketed by the Wall Street firm.
The settlement is subject to approval by a federal judge.
Goldman said yesterday that Fabrice “Fabulous Fab” Tourre, who was at the centre of the SEC investigation, will remain with the bank on unpaid leave.