Expect all of Saturday’s newspapers to be filling their front pages with this breaking news: The Securities and Exchange Commission sued Goldman Sachs and one of its employees for civil fraud, alleging they defrauded investors in selling a financial product tied to subprime mortgages, in 2007. Here’s the suit . The potential financial impact on Goldman from the case is unclear because Goldman’s gain from the alleged fraud was $15 million. However, the investors’ loss was $1 billion, according to the SEC. But this story has legs, folks. First off, Goldman has been feeling heat in recent months amid record profits and revelations of their wild success amid the credit crisis, which hit other Wall Street firms hard. To say the firm had a target on its back, politically speaking, is an understatement. An hour after the suit was filed, Goldman shares were down 13%. Second, the SEC also has been under seige in recent months for, among other things, perceived failures to catch Ponzi schemer Bernard Madoff and some high-profile litigation trip-ups, including its failed insider-trading case against Mark Cuban. If the Goldman case is successful, it could help rebuild the agency’s reputation. Third, the case filed by the SEC prominently features hedge fund Paulson & Co., led by John Paulson, who made the “Greatest Trade Ever” by betting against the mortgage market. His firm earned $15 billion in 2007 alone. The SEC’s case focuses on a single transaction structured by Goldman, for which it allegedly earned $15 million in fees from Paulson. Here’s what allegedly occured. Goldman sold a “synthetic CDO,” or collateralized debt obligation, to investors. Goldman allegedly told those investors that subprime-mortgage securities underlying the CDO were selected by a third-party firm called ACA. However, the SEC alleged, it was the Paulson fund that had selected the securities. Paulson in a separate transaction then put up lots of money to bet that those securities would sour. Investors who purchased slices of the CDO, such as ABN AMRO, a Dutch bank, collectively lost $1 billion as the mortgage-backed securities quickly soured amid the mortgage crisis, according to the SEC. Goldman allegedly helped Paulson bet against those securities, and Paulson’s firm made a profit of about $1 billion. The SEC alleges that Goldman Sachs Vice President Fabrice Tourre was principally responsible for structuring the deal, called ABACUS 2007-AC1. “Tourre allegedly knew of Paulson & Co.’s undisclosed short interest and role in the collateral selection process,” the SEC said. Goldman’s response: “The SEC’s charges are completely unfounded in law and fact and we will vigorously contest them and defend the firm and its reputation.” Goldman is being represented by Richard H. Klapper at Sullivan & Cromwell, and Tourre is repped by Pam Chepiga at Allen & Overy. As for why Paulson wasn’t sued, our colleagues at Deal Journal address that question here .