Goldman has claimed innocence for months

The Securities and Exchange Commission filed suit Friday alleging the bank sold mortgage-backed securities secretly designed to fail, as they were selected by hedge fund manager John Paulson, who had bet heavily against the housing market.
But sources said Goldman and the SEC spent months negotiating only to come to an impasse. Goldman has since said it was unaware the SEC planned to file suit.

However, sources said Goldman has long refused to settle out of court.

In a statement, Goldman said Monday: "We believe that the firm's actions were entirely appropriate, and will take all steps necessary to defend the firm and its reputation by making the true facts known."

Proceeding with the suit came down to a 3-2 vote with two Republican SEC commissioners opposed to filing the case.

Foreign regulators -- the Financial Services Authority in Britain and the Federal Financial Supervisory Authority in Germany -- have said they are also investigating the case in cooperation with the SEC. The Post said the Royal Bank of Scotland lost $850 million while Deutsche-Industriebank lost more than $100 million in investments related to the alleged fraud.

Copyright 2010 United Press International.