Still, the $550 million was the largest penalty a Wall Street company has ever paid to the SEC. Regulators said $250 million would be returned to affected investors and $300 million would be paid to the U.S. Treasury.
The settlement is subject to approval by a judge. Within 30 days, Goldman must wire money to three parties: $150 million to Deutsche Bank, $100 million to the Royal Bank of Scotland and $300 million to the SEC.
In a statement, the SEC called the settlement “a stark lesson to Wall Street firms that no product is too complex … to avoid a heavy price if a firm violates the fundamental principles of honest treatment and fair dealing.”
Not looking so ‘Fab’ now, Tourre
Charges filed in April: The SEC filed the fraud charges in April against New York-based Goldman and one of its vice presidents, Fabrice Tourre, for failing to disclose conflicts in a 2007 sale of a so-called collateralized debt obligation dubbed Abacus.
The SEC said Goldman acknowledged it gave investors “incomplete information,” though the company neither admitted nor denied the allegations. Goldman will also “reform its business practices” as part of the settlement.
Investors in Abacus lost $1 billion, the SEC said when filing the fraud charges. The commission’s complaint alleged that Goldman allowed hedge fund Paulson & Co. to help choose the securities included in the CDO, which is a financial instrument backed by a pool of assets such as loans or bonds.
But Goldman didn’t tell investors that Paulson was shorting the CDO, or betting its value would fall.
Goldman shot back in April, saying the charges were “completely unfounded in law and fact” and that the company lost $90 million on the deal.
What Goldman has to change: As part of the settlement, the SEC required Goldman to comply with certain business practices for three years. The company will be required to certify in writing, each year, that it has followed all of the rules.
Goldman must expand the role of its firmwide capital committee in approving the sale of mortgage-backed securities.