The Securities and Exchange Commission announced civil fraud charges against the company and one of its vice presidents. It alleges Goldman failed to disclose that one of its clients helped create -- and then bet against -- sub-prime mortgage securities that Goldman sold to investors.
Investors in the mortgage securities are alleged to have lost more than a billion dollars, the SEC said. The agency is seeking to recoup profits reaped on the deal.
The Goldman client implicated in the fraud is one of the world's largest hedge funds, Paulson, which paid Goldman roughly 15 million dollars for structuring the deals in 2007.
Goldman Sachs shares fell more than 12% after the SEC announcement, which also caused shares of other financial companies to sink.
The civil lawsuit filed by the SEC in federal court in Manhattan was the government's most significant legal action related to the mortgage meltdown that ignited the financial crisis and helped plunge the country into recession.
The agency also charged a Goldman vice president, Fabrice Tourre, 31, who it said was principally responsible for devising the deal and marketing the securities.
The SEC is seeking unspecified fines and restitution from Goldman Sachs and Tourre.
Goldman told investors that a third party, ACA Management LLC, had selected the underlying mortgages in the investment. But the SEC alleges Goldman misled investors by failing to disclose that Paulson also played a role in selecting the mortgages and stood to profit from their decline in value.
(source: Press Association)
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