Finance

Goldman's $550 Million 'Mistake'

The SEC is dropping its lawsuit against Goldman Sachs, after the bank agreed to pay $550 million to settle the case. (Here's the full settlement agreement.)

The agency accused Goldman of defrauding investors in a CDO, one of those complicated bonds that lost huge amounts of value when the housing market went bust.

The problem wasn't that the CDO lost value. It was that a hedge fund played a role in choosing what went into the CDO, then bet against it — and Goldman didn't tell people who invested in the CDO about the hedge fund's role.

The SEC's complaint repeatedly cited the marketing materials Goldman used to pitch the CDO to investors — and noted that the materials didn't disclose the hedge fund's involvement. This pitch book, for example, describes the CDO at length without mentioning the hedge fund.

Goldman has called that the SEC's accusations unfounded. And the company agreed to today's settlement "without admitting or denying the allegations."

But the settlement does say it was a "mistake" for Goldman to fail to disclose the hedge fund's role in the process — and adds that "Goldman regrets that the marketing materials did not contain that disclosure."

The settlement is the biggest ever between a Wall Street bank and the SEC, according to the agency.

What about the Fabulous Fab? The SEC's complaint named both the company and Goldman VP Fabrice Tourre as defendants in the case. The agency said today that its litigation against Tourre will continue.

 

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