"We would never intentionally mislead anyone," said Gregory Palm, general counsel for Goldman Sachs. "Certainly not our clients or our counter parties."
The suit, which accuses the firm of creating an investment designed to fail, signals a more aggressive Securities and Exchange Commission.
"Clearly this is a different way the SEC is doing business," said former SEC investigator Robert Heim. "They're really sending a message to wall Street that there's a new cop on the beat."
Heim said the agency was embarrassed by its failure to heed warning about Bernard Madoff's stock fraud scheme.
"The word was out on this guy," said Sen. Christopher Dodd, D-Conn. "How does the SEC avoid not reacting to this?"
But SEC commissioners were divided on pressing the Goldman case. Two Republican commissioners voted against and two Democratic members in favor. It was Chairman Mary Shapiro, appointed by President Obama, who broke the tie.
Shapiro said there wasn't political pressure for the SEC to bring the Goldman Sachs case.
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"The fact that they wanted the case to come out now, doesn't mean it's a bad case. It doesn't mean there's anything improper," said former New York State Attorney General Eliot Spitzer.
Spitzer said you have to play hard ball with Wall Street.
"The reality is if you look at the last two years I think most people would draw the conclusion that Wall Street doesn't get it," Spitzer said. "The degree to which their behavior destroyed jobs, wealth. And until they get it you just have to play tougher and tougher."
Both the British and German financial regulators have announced they will open investigations into Goldman's activities. The Royal Bank of Scotland, now owned by the British Government, lost $850 million on the Goldman deal.
So can the U.S. Government win the case against Goldman?
"It depends on how you describe 'victory,'" Mason told CBS News anchor Katie Couric. "These cases are rarely slam dunks and if it happens it will probably be at least a year away. If the goal here was to alter or influence the debate about reform, you can see the SEC has already done that."