Goldman Sachs will pay $550mn to settle civil fraud charges, RBS gets $100mn

Royal Bank of Scotland prosecutes Goldman Sachs for hundreds of millions of dollars to add to $100 million it received as part of a settlement over the marketing of a subprime mortgage product.

As it’s known, resolving a high-profile government case related to the mortgage meltdown, Goldman Sachs has admitted to pay a record $550 million to settle civil fraud charges that it misled buyers of complex investments.

Actually, the deal calls for Goldman to pay a $535 million fine and $15 million in restitution of fees it collected. Of the total $550 million, $300 million will go to the government and $250 million goes to compensate two European banks that lost money on their investments.

The penalty appeared to be the largest against Goldman Sachs in SEC history. But the settlement amounts to less than 5% of Goldman's 2009 net income of $12.2 billion after payment of dividends to preferred shareholders — or a little more than two weeks of net income.

Thus far, of the $550 million Goldman agreed to pay, $250 million will go to the two big losers in the deal. German bank IKB Deutsche Industriebank AG will get $150 million. Royal Bank of Scotland, which bought ABN AMRO Bank, will receive $100 million.

Goldman also will pay back $15 million in fees it collected for managing the deal. The remaining $535 million is considered a civil penalty.

The SEC had alleged that Goldman Sachs sold mortgage-related 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 while helping Goldman client Paulson & Co. capitalize on the housing bust, the SEC said in the charges filed April 16.

As the Securities and Exchange Commission claimed the penalty left the door open for future civil suits.