Goldman Sachs to pay record €425m to settle fraud case

EMBATTLED US bank Goldman Sachs will pay a record $550 million (€425m) to settle a US fraud probe, the Securities and Exchange Commission said yesterday.

Goldman faced civil charges filed by the SEC, which accused the company of defrauding investors about a financial product based on subprime mortgage-backed securities.

“This settlement is a stark lesson to Wall Street firms that no product is too complex, and no investor too sophisticated, to avoid a heavy price if a firm violates the fundamental principles of honest treatment and fair dealing,” said the SEC’s director of enforcement Robert Khuzami.

The SEC had claimed Goldman allowed a prominent hedge fund, Paulson & Co Inc, to help put together a package of subprime mortgages that were sold to clients, but which the fund was at the same time betting against.

In a statement the firm acknowledged “that the marketing materials for the ABACUS 2007-ACI transaction contained incomplete information.

“It was a mistake for the Goldman marketing materials to state that the reference portfolio was ‘selected by’ ACA Management LLC without disclosing the role of Paulson & Co Inc in the portfolio selection process.”

“Half a billion dollars is the largest penalty ever assessed against a financial services firm in the history of the SEC,” said Khuzami.