(CN) – Goldman Sachs will pay $550 million to the Securities and Exchange Commission to settle a civil suit filed in April that accused the bank of creating and selling mortgage investments that were secretly designed to fail. If approved, it will be the largest penalty paid by a Wall Street firm, the SEC said.
“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,” Robert Khuzami, SEC’s director of enforcement, said in a statement.
The SEC sued the Wall Street giant in April, accusing Goldman of misstating and omitting key facts regarding a “synthetic collateralized debt obligation” that it marketed based on the performance of subprime residential mortgage-backed securities.
The SEC also claimed that Goldman created Abacus 2007-AC1 in February 2007 at the request of John Paulson, a hedge fund manager who earned $3.7 billion by correctly betting that the housing bubble was about to burst.
The SEC said Goldman failed to disclose to investors vital information about the plan.
“Without admitting or denying the allegations of the complaint … [Goldman] hereby consents to the entry of the final judgment,” according to settlement papers. The firm acknowledged “that the marketing materials … contained incomplete information.”
As part of the settlement, Goldman will pay $300 million to the Treasury Department. The rest of the money will go toward investors’ restitution.
The agreement still needs approval from Judge Barbara Jones in Manhattan.