Could it be that Goldman Sachs, the "great vampire squid wrapped around the face of humanity," is sustaining damage to one of its tentacles? This morning the S.E.C. filed a civil suit accusing the firm of securities fraud, sending Goldman's stock plunging. "The product was new and complex, but the deception and conflicts are old and simple," Robert Khuzami, the director of the S.E.C.’s division of enforcement, said 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."

The S.E.C. is accusing Goldman of selling mortgage bonds to investors that they thought might default. This was going on in 2007, and according to the Times, hedge fund manager John A. Paulson "earned" an estimated $3.7 billion by correctly wagering that the housing bubble would burst. While Goldman was selling these bonds—which Paulson believed were most likely to lose value—to investors, Paulson was also buying insurance on them, so that when the bonds plunged and defaults spread, he cashed in on the collapse. The investors lost their shirts.

The S.E.C. charges Goldman with failing to disclose to investors "vital information" about the mortgage bonds. While the bank and Vice President Fabrice Tourre, who is named in the lawsuit, disclosed the ratings of the bonds, they did not disclose that Paulson was simultaneously betting that those ratings were wrong. In a statement defending itself last week, Godman reps said, "We certainly did not know the future of the residential housing market in the first half of 2007 anymore than we can predict the future of markets today." They're not Nostradamus, they just made a lucky bet, that's all.