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 settlement came on the same day that the Senate passed the stiffest restrictions on banks and Wall Street since the Great Depression.
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. It was the most significant legal action related to the mortgage meltdown that precipitated the recession.
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.
The settlement is subject to approval by a federal judge in New York’s Southern District.
The Justice Department opened a criminal investigation of Goldman over the transactions in the spring, following a criminal referral by the SEC.
Of the $550 million Goldman agreed to pay, $250 million will go to the two big losers in the deal: German bank IKB Deutsche Industriebank AG and Royal Bank of Scotland.