The settlement was announced Thursday by the Securities and Exchange Commission hours after Congress gave final approval to the stiffest restrictions on banks and Wall Street since the 1930s Great Depression.

The deal calls for Goldman to pay a $535 million fine and $15 million in restitution of fees it collected. Of the total $550 million, $300 million will go to the government and $250 million goes to compensate two banks that lost money on their investments.

The penalty was the largest against a Wall Street firm in SEC history. But the settlement amounts to less than 5 percent of Goldman's 2009 net income of $12.2 billion after payment of dividends to preferred shareholders — or a little more than two weeks of net income.

Word that Goldman had settled began leaking about a half-hour before stock markets closed and appeared to please investors. Goldman had been trading at about $140 a share. The stock rose to close at $145.22, up $6.16, and shot up to $151.95 in after-hours trading. The shares continued to gain in premarket activity, rising to $152.90 The settlement involves charges that Goldman sold mortgage investments without telling buyers that the securities had been crafted with input from a client that was betting on them to fail.

The securities cost investors close to $1 billion while helping Goldman client Paulson and Co. capitalize on the housing bust, the SEC said in the charges filed April 16.

The charges were the most significant legal action related to the mortgage meltdown that pushed the country into recession. They dealt a blow to the reputation of a Wall Street giant that had emerged relatively unscathed from the financial crisis.

Goldman acknowledged Thursday that its marketing materials for the deal at the center of the charges omitted key information for buyers.

But the firm did not admit legal wrongdoing.

In a statement, Goldman said "it was a mistake" for the marketing materials to leave out that a Goldman client helped craft the portfolio and that the client's financial interests ran counter to those of investors.

"We believe that this settlement is the right outcome for our firm, our shareholders and our clients," the firm's statement said.

Robert Khuzami, the SEC's enforcement director, called the settlement a "stark lesson to Wall Street firms that no product is too complex, and no investor too sophisticated, to avoid a heavy price if a firm violates the fundamental principles of honest treatment and fair dealing." The SEC's wide-ranging investigation of Wall Street firms' mortgage securities dealings in the years running up to the financial crisis goes on, Khuzami said.

"We are looking at deals across a wide variety of institutions and a wide variety of circumstances," he said.

Though the fine won't make much of a dent in Goldman's finances, the settlement will have sweeping legal implications for future securities fraud cases, said John Coffee, a securities law professor at Columbia University.

"Even if the penalty was lower than the market expected, the fact that Goldman admitted that it made misleading and incomplete disclosures to its clients vindicates the SEC's legal theory for the future," Coffee said. "You have to understand that the defendant almost never makes such a concession in SEC settlements." The settlement is subject to approval by a federal judge in New York's Southern District.

The SEC said its case continues against Fabrice Tourre, a Goldman vice president accused of shepherding the deal.

Tourre is still employed by Goldman and remains on paid administrative leave, according to a person familiar with his status who wasn't authorized to discuss the matter publicly. Goldman is paying Tourre's legal expenses, the source said.

The Justice Department opened a criminal inquiry of Goldman in the spring, following a criminal referral by the SEC, the Associated Press reported in April, citing a knowledgeable person who spoke on condition of anonymity because the inquiry was in a preliminary phase.

Goldman made no mention of a criminal case in its statement Thursday.

Of the $550 million Goldman agreed to pay, $250 million will go to the two big losers in the deal. German bank IKB Deutsche Industriebank AG will get $150 million. Royal Bank of Scotland, which bought ABN Amro Bank, will receive $100 million.

Goldman will also pay back $15 million in fees it collected for managing the deal. The remaining $535 million is considered a civil penalty.

Paulson was not charged by the SEC.