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SEC Suing Goldman Sachs. No, Really.

The federal government is suing Goldman Sachs for fraud.

Say it again. Every time I say that to myself, I’m surprised and thrilled all over again. As in, maybe there really is going to be some accountability for Wall Street.

Goldman Sachs, which emerged relatively unscathed from the financial crisis, was accused of securities fraud in a civil suit filed Friday by the Securities and Exchange Commission, which claims the bank created and sold a mortgage investment that was secretly devised to fail.

The move marks the first time that regulators have taken action against a Wall Street deal that helped investors capitalize on the collapse of the housing market. Goldman itself profited by betting against the very mortgage investments that it sold to its customers.

In other words:

“The product was new and complex, but the deception and conflicts are old and simple,” Robert Khuzami, the director of the S.E.C.’s division of enforcement, said in a statement. “Goldman wrongly permitted a client that was betting against the mortgage market to heavily influence which mortgage securities to include in an investment portfolio, while telling other investors that the securities were selected by an independent, objective third party.”

Matthew Yglesias writes:

The general form of this complaint, that it was wrong for Goldman to make money by betting on the failure of debt-vehicles that in another context Goldman was marketing, has been around for a while. But it’s never been clear to me if there was evidence of actual deliberate fraud, as opposed to something vaguer like an undisclosed conflict of interest. It seems, however, that the SEC believes it has smoking guns.

What I’m waiting to see is if this suit gets carried through and really shows Wall Street its days of having its way with the economy are done, or whether it ends in a relatively minor settlement.

Tags: Wall Street