You are here
Criminal probe looks into Goldman Sachs trading
By Susan Pulliam and Evan Perez
The Wall Street Journal
Thursday, April 29, 2010
http://online.wsj.com/article/SB1000142405274870357250457521465299834887...
Federal prosecutors are conducting a criminal investigation into whether Goldman Sachs Group Inc. or its employees committed securities fraud in connection with its mortgage trading, people familiar with the probe say.
The investigation from the Manhattan U.S. Attorney's Office, which is at a preliminary stage, stemmed from a referral from the Securities and Exchange Commission, these people say. The SEC recently filed civil securities-fraud charges against the big Wall Street firm and a trader in its mortgage group. Goldman and the trader say they have done nothing wrong and are fighting the civil charges.
Prosecutors haven't determined whether they will bring charges in the case, say the people familiar with the matter. Many criminal investigations are launched that never result in any charges.
... Dispatch continues below ...
Coming Friday-Sunday, June 11-13, at the Dallas-Fort Worth Airport Marriot:
The Anglo Far-East Bullion Co.'s Gold and Silver Conference
The conference will explore the dangers and opportunities in today's bullion markets and the need for investors to diversify bullion holdings outside of bullion banking and commodities markets. Speakers will include David Morgan of Silver-Investor.com, Gold Anti-Trust Action Committee Chairman Bill Murphy, and Duncan Cameron and Philip Judge of Anglo Far-East Bullion Co. The earliest conference attendees on Saturday will be able to schedule one-on-one interviews for personal consultation with Anglo-Far East's experts on Sunday.
Watch future GATA Dispatches for registration information.
To learn more about the Anglo Far-East Bullion Co., please visit http://www.anglofareast.com.
The criminal probe raises the stakes for Goldman, Wall Street's most powerful firm. The investigation is centered on different evidence than the SEC's civil case, the people say. It couldn't be determined which Goldman deals are being scrutinized in the criminal investigation.
A spokesperson for the Manhattan U.S. Attorney's office declined to comment. Goldman declined comment.
The development comes amid public calls for more Wall Street accountability for the industry's role in the financial crisis. Though there are multiple ongoing criminal and civil investigations, no Wall Street executives connected with the meltdown have been convicted of criminal charges. During congressional hearings this week into Goldman's role in the crisis, legislators grilled Goldman executives for nearly 11 hours.
The SEC and Justice Department often coordinate their actions on investigations. The probe underscores heightened efforts by the Manhattan U.S. Attorney's office in prosecuting white-collar and Wall Street crime. It is in the midst of pursuing the largest insider-trading case in a generation, charging 21 individuals and negotiating 11 guilty pleas in that matter.
But the Goldman probe presents a significant challenge for the government. Prosecutors in the Brooklyn office of the U.S. Attorney last year lost a high-profile fraud case against two former Bear Stearns Cos. executives, in the first major criminal case linked to the financial meltdown.
Prosecutors had accused the Bear Stearns employees of lying to investors in 2007 about the health of two funds that eventually collapsed. The case centered on what the government viewed as incriminating emails indicating the traders knew the mortgage market would fall but didn't disclose that view to investors.
To bring any criminal charges in the Goldman matter, prosecutors would need to believe they had gathered evidence that showed that the firm or its employees knowingly committed fraud in their mortgage business. Proving such intent to break the law typically is the toughest hurdle for prosecutors to clear.
Another stumbling block: Such financial cases can be highly complex. Few outside of Wall Street understand arcane products such as collateralized debt obligations, the pools of mortgage-related holdings at the heart of the SEC civil case against Goldman.
On April 16, the SEC charged Goldman and an employee, Fabrice Tourre, with securities fraud in a civil suit relating to a mortgage transaction, known as Abacus 2007-AC1, a deal the government said was designed to fail. The SEC alleged that Goldman duped its clients by failing to disclose that hedge fund Paulson & Co. not only helped select the mortgages included in the deal but also bet against the transaction. Both Goldman and Mr. Tourre have denied wrongdoing.
Even the SEC's case, which is subject to a lesser standard of proof than a criminal case, is viewed as a challenge for regulators. The SEC's commissioners were split 3-2 along party lines on whether the agency should bring a case.
In battling the SEC charges, Goldman says its investors were sophisticated and knew the underlying securities they were buying. Goldman says it wasn't required to disclose who provided input into the deal or the views of its clients in the transaction.
The congressional hearing involved numerous other mortgage deals Goldman arranged in 2006 and 2007. Lawmakers criticized Goldman and its executives for allegedly stacking the deck against clients during the market meltdown in 2007.
Some of the emails released by regulators, lawmakers and Goldman suggest a callous attitude among Goldman employees toward the risks involved in some of the Goldman mortgage deals, including one in which a Goldman employee referred to a mortgage transaction the firm sold to investors as a "sh---y" deal.
Over the years, the government has been reluctant to criminally charge financial firms with wrongdoing because the charge itself can cause a business to implode. Some investing clients can't or won't trade with a firm facing such a taint.
Indeed, in the more than two-century history of the U.S. financial markets, no major financial firm has survived criminal charges. Securities firms E.F. Hutton & Co. and Drexel Burnham Lambert Inc. crumbled after being indicted in the 1980s. In 2002 Arthur Andersen LLP went bankrupt after it was convicted of obstruction of justice for its role in covering up an investigation into Enron Corp. The conviction was later overturned by the Supreme Court.
In recent years, some financial firms have agreed to "deferred prosecutions," in which they agree to a probationary period for which they won't commit any future wrongdoing.
That's what Prudential Securities Inc. famously did in 1994 when that securities firm faced criminal charges that it misled investors about the risks and rewards of limited-partnership investments. Prudential agreed to a three-year deferred prosecution, as well as fines and restitution, to end a criminal securities-fraud investigation.
* * *
Support GATA by purchasing a colorful GATA T-shirt:
Or a colorful poster of GATA's full-page ad in The Wall Street Journal on January 31, 2009:
http://gata.org/node/wallstreetjournal
Or a video disc of GATA's 2005 Gold Rush 21 conference in the Yukon:
* * *
Help keep GATA going
GATA is a civil rights and educational organization based in the United States and tax-exempt under the U.S. Internal Revenue Code. Its e-mail dispatches are free, and you can subscribe at:
To contribute to GATA, please visit:
http://www.gata.org/node/16
The Silver Saver Program
A unique silver savings program has been developed by trusted friends of Silver-Investor.com founder David Morgan, perhaps the world's best-known silver market commentator.
In the Silver Saver Program you buy silver in select increments and at competitive prices. You enter the market through dollar cost averaging.
The program is easy to start and is automatic but also easily modified if you wish.
Your silver can be delivered to your door. If the program no longer meets your needs, you can stop at any time.
"This program," Morgan says, "not only receives my full endorsement but also adheres to the tenets I set forth in 'The 10 Rules of Silver Investing' -- dollar cost averaging and putting real silver into your savings plan.
"As an introductory promotion, if you decide participate in the Silver Saver Program, I will send you a free copy of 'Silver in the Next Decade,' one of the most important Morgan Reports I have written. And you will have the opportunity to read the Morgan Report free for 30 days.
"Now more than ever it is important to accumulate physical silver and to stay informed on major economic developments. My reports cover money, metals, and mining, but I have always stressed the need to have physical metal. The Silver Saver Program will help you achieve a solid position in silver."
For more information, please visit www.Silver123.net.
If you would like to talk to someone about the Silver Saver Program, telephone our team at 785-727-2277.
