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S.E.C. filed a lawsuit against Goldman in April, accusing the bank of securities fraud. The settlement came just days before Goldman is scheduled to report its second-quarter earnings.
Under the terms of the deal, Goldman will pay $300 million in fines to the Treasury Department, with the rest serving as restitution to investors in the mortgage-linked security. Goldman will not admit wrongdoing, though it will admit that its marketing materials for the investment “contained incomplete information.”...
According to the complaint, Goldman created Abacus 2007-AC1 in February 2007 at the request of John A. Paulson, a prominent hedge fund manager who earned an estimated $3.7 billion in 2007 by correctly wagering that the housing bubble would burst. Mr. Paulson is not named in the suit.
GOLDMAN SACHS TO PAY RECORD $550 MILLION TO SETTLE SEC CHARGES RELATED TO SUBPRIME MORTGAGE C.D.O.
Firm Acknowledges C.D.O. Marketing Materials Were Incomplete and Should Have Revealed Paulson’s Role
Washington, D.C., July 15, 2010 – The Securities and Exchange Commission today announced that Goldman Sachs & Co. will pay $550 million and reform its business practices to settle S.E.C. charges that Goldman misled investors in a subprime mortgage product just as the U.S. housing market was starting to collapse.
In agreeing to the S.E.C.’s largest ever penalty paid by a Wall Street firm, Goldman also acknowledged that its marketing materials for the subprime product contained incomplete information. Goldman agreed to settle the S.E.C.’s charges without admitting or denying the allegations by consenting to the entry of a final judgment that provides for a permanent injunction from violations of the antifraud provisions of the Securities Act of 1933. Of the $550 million to be paid by Goldman in the settlement, $250 million would be returned to harmed investors through a Fair Fund distribution and $300 million would be paid to the U.S. Treasury.