Criminal investigation being considered for Goldman Sachs

McClatchy NewspapersApril 29, 2010 

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.

MORE FROM MCCLATCHY

Goldman Sachs: Low Road to High Finance

Pulitzer finalist: Judges honor McClatchy probes of Wall Street

Goldman executives: We made money betting against mortgage market

Where was Moody's board when top-rated bonds blew up?

In Senate testimony, ratings agency heads won't take the blame

Check out McClatchy's politics blog: Planet Washington

McClatchy Newspapers 2010

McClatchy Washington Bureau is pleased to provide this opportunity to share information, experiences and observations about what's in the news. Some of the comments may be reprinted elsewhere in the site or in the newspaper. We encourage lively, open debate on the issues of the day, and ask that you refrain from profanity, hate speech, personal comments and remarks that are off point. Thank you for taking the time to offer your thoughts.

Commenting FAQs | Terms of Service