Goldman Sachs has agreed to settle a fraud lawsuit brought against it by the US Securities and Exchange Commission in an agreement reported by the media to stand at $550 million. The announcement by the Wall Street titan came out the same day that US lawmakers passed sweeping financial reforms to the banking system.

The brokerage and investment banking firm’s settlement centred on claims that it failed to fully inform investors over the sale of a collateralized debt obligation product known as Abacus 2007 ACI. Specifically, the firm had been accused of selling the CDO to investors without telling them that it had been betting against the CDO securities, and had involved John Paulson, the hedge fund investor, in choosing securities he wanted to short-sell.

Goldman Sachs has strenuously denied the allegations of wrongdoing.

The case raised questions about the potential conflicts of interest that such firms can encounter when selling investment products to investors. Goldman Sachs is also a large wealth manager, serving mainly ultra high net worth investors. Figures in the industry have told this publication that there had been some risk that Goldman Sachs wealth clients might defect if the case was not quickly resolved.

The settlement is subject to the approval of the US Court for the Southern District of New York, Goldman Sachs said in a statement on its website yesterday.

The statement read: “The firm entered into the settlement without admitting or denying the SEC’s allegations. As part of the settlement, however, we acknowledged “that the marketing materials for the ABACUS 2007-ACI transaction contained incomplete information. In particular, it was a mistake for the Goldman marketing materials to state that the reference portfolio was ‘selected by’ ACA Management LLC without disclosing the role of Paulson & Co. Inc. in the portfolio selection process and that Paulson’s economic interests were adverse to CDO investors. Goldman regrets that the marketing materials did not contain that disclosure.”

“We believe that this settlement is the right outcome for our firm, our shareholders and our clients,” it continued.

“We understand that the SEC also has completed a review of a number of other Goldman Sachs mortgage-related CDO transactions and does not anticipate recommending any claims against Goldman Sachs or any of its employees with respect to those transactions based on the materials it has reviewed. We recognize that, as is always the case, the SEC has reserved the right to reopen those matters based on new information,” it added.