Goldman Sachs charged with fraud by SEC

Goldman shares fell as much as 15.6% and broader stock markets fell after the news.

The SEC alleged that Paulson & Co, a major hedge fund run by billionaire John Paulson, worked with Goldman in creating a collateralised debt obligation, and stood to benefit as its value fell, costing investors more than USD 1 billion. That is roughly the amount that Paulson is estimated to have made by betting against the CDO.

Fabrice Tourre, a Goldman vice president who the SEC said was principally responsible for creating the product, was also charged with fraud. Paulson was not charged.

"The SEC has come out swinging," said Cary Leahey, senior managing director of Decision Economics in New York. "This will be a difficult case to prove. Even supposed experts on Wall Street with years of experience in this area are still scratching their heads trying to figure out who did what."

Goldman defends itself

Goldman vowed to fight the SEC civil suit.

"The SEC's charges are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation," it said.