Vowing not to be 'chumps,' financial inquiry subpoenas Goldman's records

McClatchy NewspapersJune 7, 2010 

Vowing not to be 'chumps,' commission subpoenas Goldman's records

WASHINGTON — Leaders of a government commission accused Goldman Sachs Monday of "stonewalling" their inquiry into causes of the financial crisis and said the panel has issued a subpoena to compel the Wall Street giant to produce documents and access to key executives.

In a conference call with reporters, Democratic Chairman Phil Angelides and Republican Vice Chair Bill Thomas of the Financial Crisis Inquiry Commission rebuked Goldman for what they described as "abysmal" behavior unmistakably aimed at stalling the panel for months.

"In our view, this has been a very deliberate effort over time to run out the clock," Angelides said, referring to the commission's mandate to complete its sweeping examination and submit a report to Congress by December. "We're not going to let the American people be played for chumps here."

"What have they got to hide?" asked Thomas, a former California congressman. "... It seems to me they may have more to cover up than maybe we thought or they told us they did."

Asked about the subpoena that was served Friday, Goldman spokesman Michael DuVally said: "We have been and continue to be committed to providing the FCIC with the information they have requested." However, Angelides and Thomas said that, rather than complying with the panel's requests for specific information as at least six other investment banks did, Goldman turned over five "terabytes" of data _ the equivalent of 2.5 billion pages of documents. Even then, some of the requested information appears to have been withheld, Thomas said.

"We did not ask them to pull up a dump truck to our offices and dump a bunch of rubbish," Angelides said, adding that Goldman has failed to provide an index so that investigators can efficiently search the data for the desired information.

"We should not be forced to play 'Where's Waldo?' on behalf of the American people," he said, an allusion to a popular picture game in which a man with a striped hat is hidden among hundreds of people.

In a summary of the subpoena, the commission said it sought information about Goldman's offshore sale of tens of billions of dollars in mortgage securities since 2004, including exotic transactions in which one party stood to profit if the underlying loans failed. It also sought the names of Goldman's customers that had earlier been identified only by numbers.

In addition, it requested a log of documents that the firm had previously turned over to investigators for the Senate Permanent Subcommittee on Investigations in response to a subpoena by that panel.

The commission's subpoena also demanded interviews with 10 present and former Goldman executives, including Chief Executive Officer Lloyd Blankfein, President Gary Cohn, Chief Financial Officer David Viniar and executives in its mortgage-trading unit. After the subpoena was served, Angelides and Thomas said, Goldman advised the panel it was ready to schedule interviews.

Blankfein, testified to the FCIC in January along with top officers from three other major banks. In response to questions from commission members, he pledged that his firm would voluntarily cooperate with further inquiries from the commission.

Thomas said, however, that when the commission complained about the firm's incomplete responses, Goldman cited "human error." Thomas pointed to a pattern that appeared to reflect "an agreed-upon strategy."

Goldman, the only Wall Street firm to safely exit the subprime mortgage market before the housing crash, has been at the center of inquiries into possible misbehavior by the Securities and Exchange Commission, the Justice Department, Congress, New York's state attorney general and the FCIC.

Angelides and Thomas declined to say exactly which Goldman activities their panel is investigating. However, they said that the commission had requested information on Goldman's role in buying mortgage loans and converting them to securities and as a "market maker" in peddling the securities.

The subpoena was the 12th issued by the commission, but the panel has resorted to the compulsory legal process with only one other company: Moody's Investors Service, the Wall Street credit ratings agency. Most of the other subpoenas were at the request of individuals, some of whom were prevented from fully cooperating by confidentiality agreements until compelled to do so.

Angelides and Thomas, cognizant of the tight deadline for their 50-member staff to issue a report on the roles of a broad range of institutional players in the 2008 meltdown, warned last year that they would subpoena any party that engaged in stalling tactics.

Under the law creating the commission, a subpoena only can be issued with at least seven votes from the panel of six Democrats and four Republicans.

Goldman has been unable to shake growing scrutiny of its role.

On April 16, the Securities and Exchange Commission filed a civil fraud suit accusing Goldman of allowing a longtime client, the hedge fund Paulson & Co., to rig an offshore deal so that it could bet against the mostly subprime mortgage securities. Paulson reaped a $1 billion profit, while two European banks together lost about $1 billion.

The U.S. attorney's office in Brooklyn, N.Y. also is considering whether to formally open criminal investigations into the mortgage dealings of Goldman and other major banks.

In a series published last November, McClatchy reported that Goldman had sold more than $40 billion in mortgage securities backed by dicey home loans in 2006 and 2007 without telling investors that it was betting that similar securities would default

A marathon hearing in April culminating an exhaustive inquiry by the Senate Permanent Investigations Subcommittee lent credence to that report. The panel released over 100 subpoenaed documents and charged that Goldman had secretly bet billions of dollars on a housing downturn at the same time it was selling risky residential mortgage securities.

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