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Last Friday, the US Securities Exchange and Commissions (SEC) charged financial giant Goldman Sachs & Co. of fraud. The SEC alleged that Goldman Sachs failed to disclose that one of its Collateralized Debt Obligation (CDO) products was created by the same people who wagered that it would fail. Hah, talk about a conflict of interest!

Of course, Goldman Sachs flat out denied the SEC’s allegations and said that these were completely unfounded. Although yet to be proven, the fraud accusations tempered risk appetite in the markets, giving the dollar a chance to shine as investors ran for safety.

And why wouldn’t they? Goldman Sachs is considered as one of the most powerful financial institutions in Wall Street and a scandal like this could have a wide reaching ripple effect, not only in banking, but in other sectors of the US economy too.

It was a market confidence shattering event, to say the least. Remember that the bearish sentiment on higher-yielding currencies like the Australian dollar, pound, and euro were already on high waters prior to the news due to the ongoing concerns on Greece’s bailout package and the UK’s electoral proceedings.

As soon as the SEC’s accusations were made public, most of the anti-dollars dropped by a hundred pips! The USDCAD, for one, surged from 1.0050 to 1.0127 in just one hour! It did not stop there, as most majors continued with their free fall afterward. The dollar found itself gapping higher against most major currencies when the markets opened earlier today.

Let’s face it: The US public doesn’t quite trust financial companies and, with this recent Goldman Sachs issue, they have even less reason to do so now. If there’s one thing you should know, the SEC’s accusations are indeed very serious and sensitive. After all, this whole financial mess started because big-name banks deceived average Joes, taking massive unnecessary risks, which eventually led to inevitable defaults and large losses.

Now, the SEC is looking to investigate other companies in order to weed out other potential cases of fraud. This could trigger widespread risk aversion and cause both investor and consumer confidence to deteriorate. This, of course, could lead to tighter lending and spending conditions, which would put a drag on the economy.

Many are now starting to worry that the alleged Goldman Sachs fraud could be the first of many more to come. Was this merely an isolated incident and traders just had an exaggerated reaction to the news? Now that the Greek debt tragedy seems to be a thing of the past, is this the start of a new financial drama series? Talk about another wave of uncertainty!

Despite the murky mist that lies ahead, there are signs of hope. At the very least, we should take solace in the fact that government agencies like the SEC are taking the necessary steps in order to ensure that these problems do not repeat themselves in the future.

After all, as Big Ben Bernanke has said in the past, a good economy should be built on a sound financial system. The SEC’s findings are just another step towards achieving that goal. Besides, the Obama administration is in the process of pushing for a bill that would overhaul financial regulations in the US. Once this legislation is passed, a full-blown financial crisis would probably be one less thing to worry about.