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Goldman Sachs is focus of criminal investigation

U.S. attorney's office in New York is conducting an inquiry into the investment bank’s mortgage securities deals.

April 29, 2010|Times Staff and Wire Services

The U.S. attorney's office in New York is conducting a criminal investigation of Goldman Sachs & Co. over mortgage securities deals the big Wall Street firm arranged, according to the Associated Press, citing an unnamed person knowledgeable of the investigation.

The person said the inquiry stems from a criminal referral by the Securities and Exchange Commission. The source spoke Thursday on condition of anonymity because the investigation is in a preliminary phase.

News of the action came a day after a group of 62 House lawmakers, including Judiciary Committee Chairman John Conyers Jr. (D-Mich.), asked the Justice Department to conduct a criminal investigation of Goldman.

SEC spokesman John Nester declined to comment on the matter, as did the U.S. attorney's office in Manhattan.

Goldman spokesman Lucas van Praag said, "Given the recent focus on the firm, we're not surprised by the report of an inquiry. We would cooperate fully with any request for information."

The Wall Street Journal first reported the Justice Department action.

The SEC filed a civil complaint against Goldman and its star vice president, Fabrice Tourre, on April 16, accusing them of fraud in the firm's marketing of subprime mortgage-related securities.

The case alleged that they created securities based on subprime mortgages that would probably collapse. Those securities were secretly selected by hedge fund Paulson & Co., which was separately betting that such mortgage-backed securities were going to fail.

Paulson paid Goldman a $15-million fee but made $1 billion, the SEC said, while investors who bought the mortgage-related securities lost $1 billion.

Goldman denied wrongdoing at the time of the SEC action, saying it provided full disclosure to the sophisticated investors who bought the securities. Goldman claimed that it lost $90 million from its own investment in the security.

Under blistering questioning at a Senate hearing this week, Goldman executives maintained they had done nothing wrong.

"I deny categorically the SEC's allegation. And I will defend myself in court against this false claim," Tourre, 31, told the Senate Permanent Subcommittee on Investigations, which conducted a nearly 18-month investigation into Goldman's actions.

Top Goldman executives also denied that Goldman placed a large bet on the housing market's collapse, saying the firm was only trying to offset the risk from its deep exposure to residential mortgages.

They also said there was no conflict of interest in selling securities to investors as Goldman was betting they would go down in value.

In late 2008, soon after the collapse of Lehman Bros. Holdings Inc., Goldman took $10 billion from the government's Troubled Asset Relief Program. But its recovery was so sweeping that it paid back the government by last summer, plus 23% interest.

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