Judge Approves Goldman’s $500 Million Settlement with SEC

By | July 21, 2010

A federal judge has approved a $550 million settlement between Goldman Sachs and the U.S. Securities and Exchange Commission related to civil fraud allegations in a subprime mortgage product.

U.S. District Court Judge Barbara Jones said she and the Southern District of New York Court will make sure Goldman complies with the settlement.

Jones’ approval was widely expected, but she had heavily scrutinized Bank of America’s purchase of Merrill Lynch, so her final decision was eagerly awaited. The deal was first announced last Friday.

The ruling comes the same day New York-based Goldman said its second-quarter earnings fell 82 percent, due in part to the settlement.

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

As part of the settlement, Goldman employees that work in its mortgage department must undergo annual training on Federal securities laws.

The company, which said it regretted failing to disclose information in marketing materials, agreed to require two internal committees to vet complex deals linked to residential mortgages.

It also agreed to run by its legal or compliance department all marketing materials used in connection with mortgage securities offerings.

The settlement only resolves the issue of this transaction in particular, and Goldman did not admit or deny charges.

It leaves the door open for additional enforcement actions in other matters by the SEC and further investigation by federal prosecutors. The Department of Justice could still pursue criminal charges, although that now looks unlikely.

The SEC said it planned to continue its lawsuit against Fabrice Tourre, the vice president at Goldman accused of putting the deal in question together.

The approval on Tuesday from Judge Jones made no mention of Tourre.

(Reporting by Ernest Scheyder and Grant McCool; Editing by Sofina Mirza-Reid)

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