Goldman Sachs last night agreed to pay $550m (£356m) to settle the fraud charges that rocked the Wall Street giant, and admitted it had misled investors in one of the multi-billion dollar mortgage deals at the heart of the credit crisis.
The penalty was the largest ever extracted by the Securities and Exchange Commission, Wall Street's regulator, but the sum was lower than some in the industry had feared, and Goldman shares surged on the news.
The company admitted no guilt on the fraud allegations themselves, but did say that it should have told investors in the controversial mortgage derivative, known as Abacus, that a hedge fund had been intimately involved in setting up the deal.
The investors who bought Abacus in 2007 lost $1bn when the underlying mortgages collapsed in value just a few months later; meanwhile John Paulson, the hedge fund manager who helped pick the mortgages, pocketed $1bn from his secret bets that Abacus would collapse.
"Half a billion dollars is the largest penalty ever assessed against a financial services firm in the history of the SEC," said Robert Khuzami, director of the SEC's enforcement division. "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."
No Goldman executives will lose their jobs as part of the settlement, and Lloyd Blankfein, the company's embattled chief executive, stays in place. The SEC is also still pursuing its related fraud case against Fabrice Tourre, the low-level Goldman mortgage trader whose personal emails formed a key plank of the SEC evidence against his firm. Mr Tourre had described himself as "the Fabulous Fab" and boasted about selling Goldman's dangerous mortgage derivatives to "widows and orphans".
Investors reacted warmly to news of the settlement, which has lifted a cloud of uncertainty that has hung over Goldman since the charges were laid in April. The payment – which will be split $300m to the US government, $250m to compensate Abacus investors – is small compared with Goldman's profits. The company earned $13.4bn in 2009, and $3.3bn in just the first three months of this year.