Goldman to settle with SEC for $550 million

Reuters, By Rachelle Younglai and Steve Eder, WASHINGTON/NEW YORK | Thu Jul 15, 2010 5:41pm EDT

Traders are seen working by the Goldman Sachs kiosk on the floor of the New York Stock Exchange, April 26, 2010. Credit: Reuters/Brendan McDermid

(Reuters) - Goldman Sachs Group Inc (GS.N) agreed to pay $550 million to settle civil fraud charges over how it marketed a subprime mortgage product, ending months of negotiations that rattled the bank's clients and weighed on its share price.

The investment bank paid the largest-ever penalty to the Securities and Exchange Commission by a Wall Street firm.

But many investors viewed the $550 million settlement as just a slap on the wrist for a bank that earned more than $13 billion last year.

"They pay $550 million and they get an $800 million pop in their stock price ... they got off easy," said Kevin Caron, a market strategist at Stifel, Nicolaus & Co in Florham Park, New Jersey.

Goldman's shares rose 4.2 percent after the market close to $151.38, after rising 4.4 percent late in the day on reports that the bank was close to settling.

Goldman's market value had plunged by more than $25 billion since the SEC charged it on April 16.

The settlement appears to leave the door open for additional enforcement actions by the SEC and further investigation by federal prosecutors.

The SEC accused Goldman of creating and marketing a debt product linked to subprime mortgages without telling investors that a hedge fund helped choose the underlying securities and was betting against them.

Goldman acknowledged as part of the settlement that its marketing materials were incomplete, but it did not admit or deny the allegations. The settlement appears to only resolve the issue of this transaction in particular.

The Wall Street Journal reported late on Wednesday that Goldman had pressed regulators to agree to a global settlement, which would effectively have ended any SEC investigations into other collateralized debt obligations underwritten or marketed by the Wall Street firm.

Of the $550 million settlement, $250 million will be returned to harmed investors, and $300 million will go to the U.S. Treasury. Of the $250 million, $150 million will go to Germany's IKB, and $100 million will go to the Royal Bank of Scotland (RBS.L)

The settlement is subject to approval by a federal judge.

The SEC announced the settlement during a news conference in Washington. It was announced the same day Wall Street reform cleared Congress and headed to President Barack Obama for his signature.

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