The Securities and Exchange Commission says the firm defrauded investors by not disclosing conflicts of interest on mortgage-backed products it developed as the housing market was collapsing.
According to The New York Times, the SEC alleges Goldman sold mortgage investments that were designed to fail. At the same time, the company was placing bets against those investments that allowed it to profit as the market declined.
The AP reports that the SEC is trying to recoup Goldman's profits on the deal for investors. The agency says those investors lost more than $1 billion on Goldman's mortgage securities.
Goldman says the "SEC's charges are completely unfounded in law and fact" and promises to contest them in court.
Lawmakers in Washington are developing legislation that would crack down on Wall Street practices that helped cause the financial crisis. A proposal from Senate Democrats includes tougher rules for complex investments like those involved in the alleged Goldman fraud.