Months ago, Gretchen Morgenson and Louise Story of The Times exposed Goldman Sachs’s practice of creating and selling mortgage-backed investments and then placing financial bets that those investments would fail. While appalling, it wasn’t clear whether the practice was also fraud. The Securities and Exchange Commission has now decided that it was, charging Goldman on Friday.

We urge everyone to keep a close eye on this case. If it is handled correctly, it should finally answer the question of whether malfeasance  and not merely unbridled greed, incompetence and weak regulation  was also responsible for the financial meltdown.

Goldman insists that what it was doing was prudent risk management. In a letter published in its annual report, it argued that “although Goldman Sachs held various positions in residential mortgage-related products in 2007, our short positions were not a ‘bet against our clients.’ ” The bank also insists that the investors who bought the structured vehicles were sophisticated professionals who knew what they were doing.

The S.E.C. is now charging just the opposite.

It accuses Goldman of intentionally designing a financial product that would have a high chance of falling in value, at the request of a client, and lying about it to the customers who bought it. It says that Goldman allowed that client  John Paulson, a hedge fund manager  to pick bonds he wanted to bet against, and then packaged those bonds into a new investment.