A few minutes after the Senate passed historic legislation to reform Wall Street, the Securities and Exchange Commission announced that Goldman Sachs had agreed to a record $550 million settlement of civil charges that the firm misled clients that lost $1 billion on a subprime CDO known as ABACUS.
Although Goldman came to terms with the government it did so without admitting any wrongdoing. It acknowledged that the marketing materials for the CDO "contained incomplete information." The firm also admitted that it was a "mistake" for the company not to disclose that hedge fund Paulson & Co. helped pick the collateral for the bond even though the firm was shorting tranches of the security.
In April the SEC accused Goldman of civil fraud, saying it created the CDO with Paulson's help but kept investors in the dark about his short position. After the suit was filed, Goldman said it lost more than $90 million on the deal as an investor.
As part of the settlement the investment banking firm agreed to a permanent injunction from violating antifraud laws. Of the $550 million that Goldman will pay, $250 million will be returned to investors with the balance going to the U.S. Treasury. The press statement issued by the SEC made no mention of the Goldman investor banker behind the deal, Fabrice Tourre.
During the subprime boom Goldman was a mid-tier subprime issuer and owned a small B&C lending unit. It continues to play in the subprime space through its ownership of Litton Loan Servicing of Texas.
