Goldman Sachs announced a tentative agreement yesterday with the Department of Justice, two state governments and a few other entities concerning federal and state investigations into the investment bank’s mortgage-backed securities practices prior to the financial crisis. Goldman is going to pay a $2.4 billion civil monetary penalty as well as provide consumer relieve including $875 million in cash and $1.8 billion in other consumer relief such as mortgage principal forgiveness, foreclosure prevention and support for debt restructuring.
Previous cases of mortgage fraud have involved whistleblowers as both the False Claims Act and FIRREA provide for payments concerning certain cases of fraud involving mortgages. In the case against Bank of America, whistleblowers were paid approximately $170 million.
Goldman separately agreed to pay $15 million to the SEC to settle alleged improprieties with short sales. Goldman allowed its customers to borrow stock for short sale based on information from the start of the day. When a customer asked Goldman to locate stock for short-selling (such as with a hard to borrow stock), Goldman allowed its customer to engage in the short sale based on the information from the beginning of the day without checking to determine whether the information was still accurate.
The SEC order concluded that the use of an automated function to fill locate requests, accessed via the F3 key, violated Regulation SHO. The SEC order also charged Goldman with inaccurate documentation of compliance with Regulation SHO because hard-to-borrow shares filled through this process were recorded the same as those filled through another process.
Merrill Lynch was previously fined $11 million for a similar issue related to hard to borrow stocks.