Goldman Sachs will pay $550 million, the largest-ever penalty paid by a Wall Street firm, to settle SEC charges the firm “misled investors in a subprime mortgage product just as the U.S. housing market was starting to collapse,” according to a Securities and Exchange Commission announcement Thursday afternoon.
As part of the settlement, “Goldman acknowledged that its marketing materials for the subprime product contained incomplete information,” the SEC statement said.
Goldman Sachs agreed in the settlement to “reform its business practices,” the statement said.
The SEC did not settle with Fabrice Tourre, a vice president at the firm who was charged along with Goldman in the SEC’s April 16 complaint filed in U.S. District Court in New York, SEC officials said at a news conference Thursday. Mr. Tourre was principally responsible for ABACUS 2007-AC1, the focus of the SEC charges, in structuring the transaction and communicating directly with investors, according to an SEC statement about its complaint. Investors in the liabilities of ABACUS are alleged to have lost more than $1 billion, according to the SEC complaint.
The SEC continues to pursue charges with Mr. Tourre, the only person charged in the complaint, SEC officials said at the news conference.
Of the settlement, $250 million will go to investors and $300 million to the Treasury Department, SEC officials said at the news conference.
In settlement papers submitted to the court, Goldman made the following acknowledgement, according to the statement:
“Goldman acknowledges that the marketing materials for the ABACUS 2007-AC1 transaction contained incomplete information. In particular, 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 and that Paulson’s economic interests were adverse to CDO investors. Goldman regrets that the marketing materials did not contain that disclosure.”
Ed Canaday, Goldman Sachs spokesman, couldn’t be reached for comment.