April 16 (Bloomberg) -- Goldman Sachs Group Inc. shares posted the biggest loss since January 2009 after the Securities and Exchange Commission charged the bank with fraud related to
packaging and selling collateralized debt obligations linked to
subprime mortgages.

Goldman Sachs tumbled 13 percent to $160.70, the lowest price since March 3. The most profitable firm in Wall Street history erased its gain for 2010 and drove Bank of America
Corp., Morgan Stanley and JPMorgan Chase & Co. to losses
exceeding 4.7 percent.

The lawsuit comes as President Barack Obama is trying to pass the most sweeping overhaul of financial regulations since the 1930s. The proposed legislation would mean stronger
oversight of derivatives trading and hedge funds, a consumer
financial-protection authority and a system for unwinding large
systemically important firms when they fail.

“Regulatory risk just got a lot bigger,” said Paul Miller, a former bank examiner for the Federal Reserve Bank of Philadelphia who’s now an analyst at FBR Capital Markets Corp.
in Arlington, Virginia. “People are wondering whether Goldman
was the only company that had a senior vice president lying and
misrepresenting a security, and the market’s thinking, ‘Probably
not,’” Miller said. “That’s what the market is selling off on:
the unknown.”

‘Completely Unfounded’

The SEC said today that New York-based Goldman Sachs created and sold CDOs tied to subprime mortgages in early 2007, as the U.S. housing market faltered, without disclosing that
hedge fund Paulson & Co. helped pick the underlying securities
and bet against them. Goldman Sachs said the claims are
“completely unfounded.” Paulson wasn’t accused of wrongdoing.

Credit-default swaps on New York-based Goldman Sachs rose 41.5 basis points, the most since November 2008, to 131.5 basis points, according to CMA DataVision prices. Banks, brokerages
and insurers in the Standard & Poor’s 500 Index collectively
sank 3.8 percent for its biggest decline since Feb. 4. Class B
shares of Warren Buffett’s Berkshire Hathaway Inc., which paid
$5 billion for Goldman Sachs warrants in September 2008,
retreated 1.7 percent to $78.72.

Bank of America, the largest U.S. bank by assets, fell 5.5 percent to $18.41 even after posting its first profit in three quarters amid gains from Merrill Lynch & Co.’s investment
banking. JPMorgan shares, which rallied earlier this week after
the bank beat analysts’ first-quarter profit estimates, slumped
4.7 percent to $45.55. Morgan Stanley slid 5.6 percent to
$29.16.

‘Old and Simple’

“The product was new and complex but the deception and conflicts are old and simple,” SEC Enforcement Director Robert Khuzami said. “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.”

Deutsche Bank AG, Germany’s largest lender, fell 7.3 percent to 55.99 euros for the biggest retreat in more than eight months. UBS AG, Switzerland’s biggest bank by assets,
slipped 2.8 percent to 17.93 Swiss francs. BNP Paribas SA,
France’s biggest bank, slumped 3.8 percent to 55.35 euros.