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Goldman Sachs stonewalling, federal panel says

The Financial Crisis Inquiry Commission subpoenas the firm, demanding information about its role during the mortgage meltdown and credit crunch.

June 08, 2010|By Nathaniel Popper and Tom Petruno, Los Angeles Times

Reporting from New York and Los Angeles — Goldman Sachs Group Inc., already under fire for its actions leading up to the financial crisis, came under attack from a federal commission that accused it of refusing to divulge information, including documents detailing its controversial bets on the mortgage market.

Saying it had been stonewalled, the federal commission investigating the financial crisis on Monday took the unusual step of issuing a subpoena to Goldman that demanded information about the investment bank's role before and during the mortgage meltdown and credit crunch.

The panel, formally called the Financial Crisis Inquiry Commission, said it resorted to the subpoena after Goldman responded to an initial request by sending a massive amount of electronic documents — the equivalent of 2.5 billion pages — without saying where in those documents the answers to the commission's specific questions might lie.

"We did not ask them to pull up a dump truck to our offices to dump a bunch of rubbish," commission Chairman Phil Angelides told reporters during a telephone conference call.

A Goldman spokesman said, "We have been and continue to be committed to providing the FCIC with the information they have requested."

The commission provided a list Monday of the numerous instances since January of this year when Goldman did not respond to requests from the commission, or responded late or with incomplete submissions. It also said it had been stymied in efforts to get interviews with key Goldman executives.

In May, the commission wrote to Goldman and said that commission staff members "did not understand the continual delays and the inability or unwillingness to provide the information requested despite the fact that commission staff had granted extensions for Goldman to respond and had participated in numerous written and verbal communications," according to a document from the commission.

The commission's lashing out at the bank is the latest in a long line of PR blows absorbed by Goldman.

Long the most profitable and prestigious U.S. investment bank, Goldman emerged from the financial crisis stronger than any of its Wall Street rivals, but since then has endured harsh criticism for how it does business.

The Securities and Exchange Commission sued the firm in April, accusing it of fraud in its marketing of complex mortgage-related securities in 2007. Goldman has denied wrongdoing in the case. Since then, the company has been at the receiving end of a barrage of lawsuits, unsympathetic congressional hearings and unflattering articles.

Lloyd Blankfein, Goldman's chief executive, has talked in recent weeks about efforts the firm was making to improve its relationships with the public and government officials by becoming more open and transparent. But the latest development suggested to some on Wall Street that the company's openness campaign still had a way to go.

"These guys have a trading mentality — you try to collect as much information as possible and give as little information as possible, so they can gain and maintain the edge," said Larry Doyle, a former Wall Street trader who blogs about the financial industry. "Lloyd and team can talk all they want about implementing changes, but their DNA is such that it would require more than just some tweaks."

Goldman's reputation has deteriorated this year more than those of its largest rivals, according to a global poll by Bloomberg of investors and analysts, the financial data provider's news service reported Monday. Of those surveyed, 83% said Goldman's stature had diminished in the last six months. Next was UBS of Switzerland with 27%.

The panel said at least a half dozen other major U.S. banks had supplied it with detailed responses to its questions. Goldman was "the outlier," Angelides said.

"What have they got to hide?" commission Vice Chairman Bill Thomas asked during the call with reporters.

Congress created the bipartisan commission last year to provide a broad look into the credit-market debacle and the resulting crash in financial markets. Its final report is due in December.

Angelides said Goldman appeared to be making "a very deliberate effort to run out the clock" on the commission.

The vast majority of the hundreds of people and firms contacted by the panel have provided information without being compelled by subpoena, the commission said. But the investigators had to resort to subpoenas to get testimony last week from Moody's Corp. and billionaire Warren Buffett for a hearing on the role of credit-rating firms in the mortgage meltdown.

The news Monday helped push Goldman's share price lower. The stock closed off $3.57, or 2.5%, at $138.68 on a down day for the market overall and financial stocks in particular.

nathaniel.popper@latimes.com

tom.petruno@latimes.com

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