Goldman, Sachs & Co. has agreed to pay $550 million and reform its business practices to settle SEC charges that it misled investors in a subprime mortgage CDO known as ABACUS 2007-AC1, which collapsed, according to multiple articles in the Wall Street Journal, CNBC.com, and others. In so doing, Goldman admitted it made a “mistake” in failing to disclose the fact that the CDO’s investments were selected in part by a hedge fund manager who was betting on the CDO to fail. The SEC had charged Goldman and its vice president, Fabrice Tourre, with fraud. At this time, the SEC’s litigation will continue against Tourre.
On July 14th, Susanne Craig and Kara Scannel reported in a WSJ piece that Goldman was anxious to settle in order to “shield the firm from the release of information that could be used against Goldman in private litigation.” The article also noted that some analysts had predicted that Goldman would pay more than $1 billion to settle. Goldman faced a Monday deadline to file its Answer to the SEC’s complaint, and the deadline had already been extended once.
The fine was reportedly the largest against a financial firm in history. It is also less than 17 per cent of Goldman’s first quarter profits this year, and less than 5 per cent of its 2009 earnings.
The SEC’s director of enforcement, Robert Khuzami, was quoted as saying: “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.”
The settlement is subject to approval by the federal judge handling the case. If approved, it would not settle any other SEC investigations against Goldman. In addition, it would not settle the criminal investigation into Goldman’s alleged securities fraud.
Page Perry is an Atlanta-based law firm with over 125 years collective experience representing investors in securities-related litigation and arbitration. While past results are not indicative of future success, Page Perry’s attorneys have recovered over $1,000,000 for clients on more than 35 occasions, and have aided clients who have been the victims of financial adviser abuse and scams. Page Perry’s attorneys are actively involved in counseling institutional and individual investors regarding CDOs. For further information, please contact us.