The Securities and Exchange Commission filed a civil suit today against Goldman Sachs for creating a mortgage investment that an article at nytimes.com today by Louise Story and Gretchen Morgenson said "was secretly devised to fail."

"The move marks the first time that regulators have taken action against a Wall Street deal that helped investors capitalize on the collapse of the housing market. Goldman itself profited by betting against the very mortgage investments that it sold to its customers. The suit also named Fabrice Tourre, a vice president at Goldman who helped create and sell the investment," according to the article.

In a statement, it continued, Goldman called the S.E.C. accusations "completely unfounded in law and fact" and said the firm would "vigorously contest them and defend the firm and its reputation."

The instrument in the S.E.C. case was known as Abacus 2007-AC1, and it was created in February 2007 by Goldman "at the request of John A. Paulson, a prominent hedge fund manager who earned an estimated $3.7 billion in 2007 by correctly wagering that the housing bubble would burst," the article said, adding that "As the Abacus deals plunged in value, Goldman and certain hedge funds made money on their negative bets, while the Goldman clients who bought the $10.9 billion in investments lost billions of dollars."

"The deck was stacked against the Abacus investors, the complaint contends, because the investment was filled with bonds chosen by Mr. Paulson as likely to default. Goldman told investors in Abacus marketing materials reviewed by The Times that the bonds would be chosen by an independent manager," according to the article.

Mr. Paulson is not being named in the lawsuit.

An article by Colin Barr this afternoon at cnnmoney.com that Robert Khuzami, director of the Division of Enforcement for the SEC, said that Paulson wasn't charged because, unlike Goldman, which sold the securities to investors, it didn't have a duty to fully disclose conflicts to other investors. In a statement, Paulson & Co. said that it "is not the subject of this complaint, made no misrepresentations and is not the subject of any charges."

In the half-hour after the suit was announced, Goldman Sachs's stock fell by more than 10 percent.

In recent months, Goldman has repeatedly defended its actions in the mortgage market, including its own bets against it. In a letter published last week in Goldman's annual report, the bank rebutted criticism that it had created, and sold to its clients, mortgage-linked securities that it had little confidence in.

"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," Goldman wrote. "We also did not know whether the value of the instruments we sold would increase or decrease."

"Goldman was one of many Wall Street firms that created complex mortgage securities -- known as synthetic collateralized debt obligations -- as the housing wave was cresting. At the time, traders like Mr. Paulson, as well as those within Goldman, were looking for ways to short the overheated market. Such investments consisted of insurance-like policies written on mortgage bonds. If the mortgage market held up and those bonds did well, investors who bought Abacus notes would have made money from the insurance premiums paid by investors like Mr. Paulson, who were negative on housing and had bought insurance on mortgage bonds. Instead, defaults spread and the bonds plunged, generating billion of dollars in losses for Abacus investors and billions in profits for Mr. Paulson," the Times article continued.

In the Abacus deal in the S.E.C. complaint, the article noted that "84 percent of the mortgage bonds underlying it were downgraded by rating agencies just five months later, according to a UBS report."