Goldman Sachs has agreed to pay 550 million US dollars (£360 million) to settle civil fraud charges that the Wall Street giant misled buyers of mortgage-related investments.
The settlement was announced by the Securities and Exchange Commission (SEC) hours after Congress gave final approval to the stiffest restrictions on banks and Wall Street since the Great Depression.
The deal calls for Goldman to pay a 535 million US dollars (£350 million) fine and 15 million US dollars (£10 million) in restitution of fees it collected. Of the total, 300 million US dollars (£200 million) will go to the government and 250 million US dollars (£160 million) goes to compensate two banks that lost money on their investments.
The penalty was the largest against a Wall Street firm in SEC history. But the settlement amounts to less than 5% of Goldman's 2009 net income of 12.2 billion US dollars (7.9 billion) after payment of dividends to preferred shareholders - or a little more than two weeks of net income.
Word that Goldman had settled began leaking about a half-hour before US stock markets closed on Thursday and appeared to please investors. Goldman had been trading at about 140 US dollars (£90) a share. The stock rose to close at 145.22 US dollars (£94) and shot up to 153.60 US dollars (£99) in after-hours trading.
The settlement involves charges that Goldman sold mortgage investments without telling buyers that the securities had been crafted with input from a client that was betting on them to fail.
The securities cost investors close to 1 billion US dollars (£650 million) while helping Goldman client Paulson&Co capitalise on the housing bust, the SEC said in the charges filed April 16.
The charges were the most significant legal action related to the mortgage meltdown that pushed the country into recession. They dealt a blow to the reputation of a Wall Street giant that had emerged relatively unscathed from the financial crisis.
Goldman acknowledged on Thursday that its marketing materials for the deal at the centre of the charges omitted key information for buyers, but the firm did not admit legal wrongdoing.
In a statement, Goldman said "it was a mistake" for the marketing materials to leave out that a Goldman client helped craft the portfolio and that the client's financial interests ran counter to those of investors.