By David Gardner
Goldman Sachs has agreed to a record £350million to settle fraud charges that it gambled on the collapse of the housing market.
The penalty is the largest ever paid by a Wall Street firm.
Goldman will pay the US Securities and Exchange Commission fines of £200million.
The rest will go to compensate those who lost money on misleading mortgage investments – including the Royal Bank of Scotland, which will receive £65million.
The charges centred on allegations that the investments were crafted with the help of a Goldman client who was betting on them to fail.
The securities cost investors close to £600million while helping hedge fund boss John Paulson capitalise on the US housing bust.
The charges were filed in April. Under the terms of the deal struck with investigators, Goldman will not admit any wrongdoing.
The furthest the Wall Street giant will go is to admit its marketing materials for the investments ‘contained incomplete information.’
The company’s shares spiked £3 after the deal was announced.
‘Half a billion dollars is the largest penalty ever assessed against a financial services firm in the history of the SEC,’ said the watchdog’s director of enforcement Robert Khuzami.
But for Goldman, the payout is a fraction of its annual earnings. The firm posted a profit of £8.6billion last year.
News Week Interactive
By Daniel Gross
But consider the tangible immediate return. On Thursday, the stock opened at $140. Friday morning, it’s set to open at $150
So for agreeing to pay $550 million [£350 million pound], Goldman saw its market capitalization increase by about $5 billion. That’s a nine-fold return on investment in a single day.