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Goldman Sachs $550 million settlement a 'stark lesson' for Wall Street

Goldman Sachs settled its SEC suit for a record amount Thursday. The settlement may be just the beginning of a broader SEC campaign against alleged Wall Street abuses.

Securities and Exchange Commission Enforcement Director Robert Khuzami announces that Goldman Sachs & Co. has agreed to pay $550 million to settle civil fraud charges that accused the Wall Street giant of misleading buyers of mortgage-related investments in Washington, on Thursday.

Jacquelyn Martin/AP

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Goldman Sachs agreed to settle a lawsuit filed by the Securities and Exchange Commission for $550 million, a record amount in the history of SEC cases against financial firms.

The agency alleged that Goldman failed to disclose key information about an investment product that had been designed with input from a client with a "short" position – a bet that the investment would go down in value.

By settling the case, Goldman lifts a cloud of uncertainty that had hung over the investment bank since April. Its share price rose sharply as news of the settlement emerged Thursday.

But the broader meaning may not be so reassuring for Wall Street. The SEC won a lot money, plus other concessions, from the largest and most powerful investment bank in a case that some securities experts thought was weak. In the process, Goldman saw its image tarnished by negative press reports and a congressional inquiry into the firm's behavior toward clients.

Most important, the case is just the opening salvo in what the SEC intends to be a broader campaign against alleged abuses on Wall Street. The settlement may help Goldman by showing some conciliation to regulatory authorities, but it doesn't mean the firm or others on Wall Street won't face further lawsuits in coming months.

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