Criminal Investigation Being Considered for Goldman Sachs

Published on
by
McClatchy Newspapers

Criminal Investigation Being Considered for Goldman Sachs

by
Greg Gordon

Embattled Wall Street titan Goldman Sachs is under criminal investigation by US federal prosecutors, the online edition of The Wall Street Journal has reported.

WASHINGTON - The Justice Department is reviewing whether Goldman
Sachs employees may have violated criminal fraud statutes in selling
off mortgage securities in the months before the U.S. housing bubble
burst, a person familiar with the matter said Thursday.

The department's inquiry, first reported by the Wall Street Journal,
was described as preliminary. It was unclear whether it would lead to a
full-blown criminal investigation.

A
spokeswoman for the U.S. attorney's office in the Southern District of
New York, the unit described as conducting the review, declined to
comment.

Michael
DuVally, a Goldman spokesman, said that "given the recent focus on the
firm, we are not surprised by the report of an inquiry. We would fully
cooperate with any requests for information."

Disclosure of the
Justice Department inquiry comes after the April 16 filing of a civil
fraud suit by the Securities and Exchange Commission accusing Goldman
of allowing a longtime client, the hedge fund Paulson & Co., to
pick many of the subprime securities in an offshore deal without
telling investors that Paulson planned to bet on their failure. Paulson
wound up with a $1 billion profit, while two European banks lost that
much on the deal.

Goldman has denied wrongdoing.

On
Wednesday, 62 U.S. House members sent a letter asking Attorney General
Eric Holder to order a criminal investigation of Goldman and other Wall
Street banks who may have misled investors in the lead-up to the
subprime mortgage meltdown in the fall of 2008. Rep. Marcy Kaptur, the
Ohio Democrat who initiated the letter, also joined liberal activists
in delivering to the Justice Department a petition signed by 140,000
Americans calling for a criminal inquiry.

It was unclear when the Justice Department review began.

McClatchy
reported last November and December that Goldman had marketed $57
billion in risky mortgage securities in a series of deals in 2006 and
2007, including $39 billion backed by mortgages that it bought from
lenders without telling investors that it was secretly making bets on a
housing downturn.

Goldman also sold billions of dollars in
offshore securities that included subprime mortgages. Securities
experts told McClatchy at the time that the practice might have
constituted fraud because investors might have opted not to buy the
securities if they knew that Goldman was betting on their collapse.

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