The Securities and Exchange Commission, in a civil suit, accused Goldman of "defrauding investors by misstating and omitting key facts about a financial product tied to subprime mortgages as the US housing market was beginning to falter."
The suit also named Fabrice Tourre, a vice president at Goldman who helped create and sell the so called collateralized debt obligation (CDO) in 2007 at the height of the mortgage crisis that plunged the country into a brutal recession.
The SEC said Goldman failed to disclose to investors key information about the product, especially the role of a major hedge fund which had taken a speculative position against the investment.
"The product was new and complex but the deception and conflicts are old and simple," said Robert Khuzami, SEC's director of the enforcement division 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," he said.
Goldman's shares slumped as low as 15 percent to at one stage to 156.60 dollars.
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