Goldman Sachs has reached a $550 million settlement Thursday with the Securities and Exchange Commission and will be required to reform its business practices. The settlement is the largest in SEC history, officials said this afternoon.
The SEC filed a lawsuit in April alleging that Goldman misled investors with a subprime mortgage product as the housing market was declining. Goldman is prohibited from deducting the settlement from its taxes, SEC officials confirmed.
Goldman has agreed to cooperate in the SEC's continuing investigation into Fabrice Tourre, a vice president at the firm involved in the mortgage deals. That case is ongoing.
As part of the deal, Goldman acknowledges that the marketing materials for the ABACUS transaction "contained incomplete information."
Specifically, "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," according to the settlement document.
"Goldman regrets that the marketing materials did not contain that disclosure," the settlement said.
The deal will require Goldman to tighten its internal controls and assess the responsibilities of its employees to ensure that collateralized debt obligations are accurate, complete and transparent.
"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 Robert Khuzami, director of the SEC's Division of Enforcement during a press conference today.
Investors affected by Goldman's actions are expected to receive a settlement within 30 days, Khuzami said.
Goldman also agreed to a permanent injunction that prohibits fraud in the offer of securities. If Goldman violates the injunction, the SEC could assess future fines and penalties.
Goldman had previously called the lawsuit "completely unfounded."
The settlement was filed in New York today and will need approval from the court.
This story was updated at 6:10 p.m.