Relating to their subprime-related securities business, unsurprisingly. A civil fraud complaint has been filed today by the SEC against the behemoth investment firm:

The SEC alleges that Goldman Sachs structured and marketed a synthetic collateralized debt obligation (CDO) that hinged on the performance of subprime residential mortgage-backed securities (RMBS). Goldman Sachs failed to disclose to investors vital information about the CDO, in particular the role that a major hedge fund played in the portfolio selection process and the fact that the hedge fund had taken a short position against the CDO.

Also at issue is the role of hedge fund Paulson & Co, the multi-billion dollar concern run by bespectacled billionaire, John Paulson. The firm participated significantly in the portfolio selection for Goldman's sub-prome CDO product, ABACUS and later adopted a short position on the product, entering in to credit default swaps with Goldman and placing itself in a position of financial interest should the ABACUS portfolio implode (which it did).

Interestingly, having bet for (and then against) the sub prime mortgage market, Paulson has, via his Recovery Fund, made more millions betting on a rise MBS value.

The tip on the Goldman / Paulson relationsip appears to have come via Paolo Pellegrini, a former Paulson & Co employee who has provided a deposition to the SEC relating to the case. Pellegrini (P-squared to his friends, a derivatives expert prior to joining the fund, was involved in orchestrating the firm's bets against the sub prime market. Pellegrini resigned from Paulson & Co in December of 2009.

While Paulson has not been charged by the SEC with any wrongdoing, the complaint specifically names Goldman Vice President, Fabrice Tourre, who structured the ABACUS CDO deal as being primarily responsible for the fraud.

The SEC's charges arise primarily from Goldman's failure to disclose Paulson & Co.'s role in portfolio selection in marketing and promotional materials concerning the ABACUS funds. Paulson's firm had no such obligation.

Goldman, as you might expect, denies any wrongdoing.