Bloomberg gives a fair and balanced picture of the criminal investigation:

“The federal review, which lawyers say is common in such a high-profile case, is being done by the U.S. attorney in Manhattan, said the people, who weren’t authorized to comment and spoke on condition of anonymity.

The Securities and Exchange Commission filed a civil lawsuit against Goldman Sachs on April 16 alleging fraud tied to collateralized debt obligations that contributed to the worst financial crisis since the Great Depression. The burden of proof in a criminal case would be higher than in the SEC’s civil case. Criminal allegations have to be proven beyond a reasonable doubt.

Based on public reports about the SEC matter, a criminal case may be difficult, said Douglas R. Jensen, an attorney with Park & Jensen LLP in New York. The case appears “highly complex” and Goldman Sachs would be able to make multiple arguments in its defense, he said in an interview.

“In order to proceed criminally in a case, you need to have very clear evidence of lying, cheating and stealing,” said Jensen, a former deputy chief of the criminal division of the U.S. attorney’s office in the Southern District of New York who served on that office’s securities fraud task force.

For some bizarre reason, the WSJ has this filed under “Politics.” (I guess this means the Foxification of the WSJ is continuing apace).

Here is the Journal’s take on it:

“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.

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.

Discuss . . .

>

Sources:
Criminal Probe Looks Into Goldman Trading
WSJ, APRIL 29, 2010, 8:38 P.M.
http://online.wsj.com/article/SB10001424052748703572504575214652998348876.html

Goldman Scrutinized by Prosecutors Reviewing SEC Case
Justin Blum and David Glovin
Bloomberg, April 29 2010
http://www.bloomberg.com/apps/news?pid=20601087&sid=azKt1pYdWUAU&

Category: Legal

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

41 Responses to “Criminal Probe into Goldman Sachs”

  1. “A spokesperson for the Manhattan U.S. Attorney’s office declined to comment. Goldman declined comment.”

  2. call me ahab says:

    I wish I cared anymore

  3. Bomber Girl says:

    The real crime, as you suggest, is the way the WSJ is evolving.

  4. hgordon says:

    I don’t get it. At this point, why just Goldman and not anyone else ? Why not the execs at Lehman who played shell games with their $150B in losses ? What about the guys that sold off these mortgages in the first place. When is someone going to wipe the smirk off Dimon’s face ? As much as I hate to admit it, I’m starting to feel some sympathy for Blankfein.

  5. the WSJ has this filed under “Politics.”

    see hgordon’s points, above..

    filing this under “Politics” might be the best piece of Journalism, found in the WSJ, in years..

  6. willid3 says:

    I am thinking this may only be the opening shot. the other may follow.

  7. TakBak04 says:

    BR– Some of your blog responders are very cynical at this point about any investigations having lived through the past decade, where we’ve seen Congressional Hearings with much bloviating go nowhere with no follow through from US Justice Department to hold anyone accountable for anything from Iraq Invasion to all the other “stuff” that could have been nipped in the bud with follow through.

    That said…we have to hope that that the SEC is a “tip of the iceberg” and more will follow. Sadly, it might just be some “oomph” given to get a push for a weak Financial Reform Bill to get passed …to follow up on the very weakened “Health Care Reform Bill” which gave much to the Insurance Companies behind closed doors and never included the promised Public Option.

    I would like to think that the Obama administration’s strategy was to put the same Foxes who raided the Hen House and murdered all the Chickens in charge of policing the place for the him….and see how they do. That would seem to be a clever strategy…because the old expression was: “It takes a thief to catch a thief” ….but it is probably wishful thinking..

    Here’s Why:

    C-Span has the Pete Peterson Foundations summit on the new Deficit Commission chaired by Alan Simpson and Erskine Bowles. The feature after Simpson and Bowles is that Bill Clinton, introduced by Bob Rubin gives a long an insightful interview about Deficits, Goldman Sachs, Social Security Reform, State Budget Deficits Concerns, Immigration and Job Growth.

    It’s worth a watch…..and a treat is to see Obama’s Budget Director (or whatever the hell his title is) Peter Orszag sitting to the right of Alan Greenspan who was there in attendance.

    To see the elderly, very wealthy Pete Petersen with his Son along with the aging remnants of the Clinton Administration like Robert Rubin and Alice Rivlin …etc. talking about instituting the “Value Added Tax” and reforming “Social Security” because the “young people” just can’t afford to take care of us “old folks” (who don’t need it) took some effort to swallow down. Plus the interviewers were the aging Lesley Stall and Bob Schieffer..whom I assume are well endowed for their future time on this earth. Also, Clinton says we need “more immigrants” to provide the jobs for the future, (an interesting thought, there).

    It’s quite a watch if you or anyone is interested. I’m linking the Morning Session with Simpson/Bowles/Rubin/Clinton. The C-Span site has the link for the afternoon session if anyone is interested in the whole Pete Petersen Extravaganza.

    LINK:

    http://www.c-span.org/Watch/Media/2010/04/28/HP/A/32288/Peter+Peterson+Foundation+Event+on+Budget+and+Deficits.aspx

  8. Transor Z says:

    NY Post reported this am that Goldman wants to settle the civil case “soon.” Reuters also picked up the story.
    http://www.nypost.com/p/news/business/settlement_day_tKZx6qL2xcbz4MX4xW9oAL

    @hgordon:
    http://www.nakedcapitalism.com/2010/04/goldman-and-deutschebank-as-predator.html

    Bruce Krasting and Yves Smith have written some awfully interesting pieces in the last 48 hours on the mechanism by which GS (and DB?) may have pushed Bear Stearns and Lehman down the stairs: selling them toxic exposures and then manipulating their ratings by simultaneously going hugely short their equities and buying massive quantities of their CDS.

  9. toad37 says:

    I hope this doesn’t make the bullish sentiment go up. I’d hate to see the market correct at all.

  10. dss says:

    @Transor,

    I would be disappointed if Goldman did anything less. The did admit under oath that one of their primary functions is the all encompassing “risk mangement”.

    Where are the investigations into the ratings agencies? Without a AAA blessing much of this mess would not have happened.

  11. TakBak04 says:

    Transor Z Says:

    Bruce Krasting and Yves Smith have written some awfully interesting pieces in the last 48 hours on the mechanism by which GS (and DB?) may have pushed Bear Stearns and Lehman down the stairs: selling them toxic exposures and then manipulating their ratings by simultaneously going hugely short their equities and buying massive quantities of their CDS.

    —–

    Lots of action on the financial blogs about this today and the past few days.. many interesting reads. Also questioning whether Europe might do some pushing for further investigation. There are so many tentacles of what was going on with the CDO’s and the rest that it will take years to track it all down…and the prevailing opinion in the Mainstream Media and Administration seems to be it’s just too difficult and expensive to deal with….so just let it go with a fine or two hear and there.

    After all it was massive….and given our limited budgetary resources…where’s the money for all the lawyers to prosecute the masses of people involved in this? Much better to blame it on “Irrational Exuberance” and the folly of Wall St. and Main St. than to go after anyone or to even place the blame on Financial Deregulation in the place it belongs. I would like to see Phil Gramm go to jail, though….and Alan Greenspan. But…that’s so wishful thinking. There are just so many participants that are “too big to fail and go to jail.” We must move on.

  12. TakBak04:
    Why Obama is listening to Peterson and Rubin, I’ll never know. Both belong in jail. What do those two have on everyone in Washington, D.C.? Was there anyone that testified today that wasn’t worth millions?

  13. TakBak04 says:

    Calvin Jones and the 13th Apostle Says:

    and…why is Bill Clinton back in there giving what seemed to be support for many of their ideas?

    What were the trade offs…? Who really runs the Government. Is it what Sen. Dick Durbin said: “The Bankers run the Country?” Or, Eisenhower’s “Beware the Military Industrial Complex?

    Who knows.

  14. hgordon says:

    @TZ

    No doubt Goldman ruthlessly profiteered to the extent the system allowed, and there’s evidence that they crossed the line in some situations. The puzzler for me is why they didn’t make more money if they were “massively short”, say in comparison to Paulson’s profits.

  15. veneziano says:

    It would be pretty hilarious if Goldman settles the civil charges one day, only to receive criminal charges the next day.

    On a side note check out borowitzreport.com: ” Goldman to Employ So-called ‘Douchebag Defense’ –
    Fabrice Tourre to be Exhibit A “

  16. Charlatan says:

    Barry…..I know that Murdoch doesn’t own theStreet.com, but I’m curious as to whether you think there as been a “Foxification” of TSCM over the years in terms of overall attitude and perspective. (FYI, it would appear Howard Simons is no longer a contributor there. No posts at all in months after almost daily posts during 2008 and 2009. Sad.)

    ~~~

    BR: I have a layout issue with several sites — TheStreet.com, Seeking Alpha, Business Insider — I think they are a visual disaster, a mess, and they are so busy, they are essentially unreadable to me.

    So I don’t the politicalization and sensationalism of the site is something I never get to.

    And for some reason, I don’t think TSCM is as important as WSJ . . .

  17. beaufou says:

    Goldman are not the only ones in this kind of twisted behavior.
    Can anyone prove they acted differently than any other financial leeches?
    That’s what bugs me, listening to the senate hearings, you can tell they’re morally wrong, but they can’t or simply don’t give a shit, and behind every Goldman, there’s a thousand Goldmans waiting for an opportunity.
    Moral relativism has done a great job turning one human being against another, Goldman is just one piece of the puzzle, it is systemic and societal.
    One civil or criminal case will not solve our problems, but it is a good start.

  18. bsneath says:

    It is becoming ever more clear that Goldman Sachs provides very little in added value to the real economy. Blankfien pretty much admitted as such in an interview with David Faber after the hearings, although his wording was too subtle for most to pick up on. When asked, he correlated more that Goldman does well when the economy does well as opposed to the other way around.

    If even Goldman Sachs cannot make a strong case for how they contribute to the economy, it makes me wonder if we would not be better off without them altogether. They are a corrosive and disruptive force upon government and society and they have acknowledged that their past actions contributed to the economic collapse which makes them a disruptive force upon the economy.

    In this regard, the greatest damage perpetrated by Goldman Sachs and others will not be resolved in either a civil or criminal court of law. It will require a fundamental rethinking about the appropriate role of the investment banking function and a change in laws.

  19. dsawy says:

    Two things come to mind:

    1. Why only Goldman (to date), when we know that there is probably more fault to be found in Lehman’s ashes, or Citi or Merrill? For an agency like the SEC, IRS, FINRA, et al, Wall Street right now is a “target rich environment” – they could review deals and records from most any firm in the last 10 years and come up with something to take into court. So why is the first high profile case against Goldman?

    I think this could be a case where the SEC has done a little bit of political thinking, but not in the conventional way. Goldman is supposed to have the rep as the “smartest” on Wall Street. Perhaps the plan is that if the SEC can make something stick against The Squid, then the other firms will be more inclined to fess up and settle.

    2. They’d have better evidence if they looked at the mathematics of the deals and securities. Once again, we see the folly of having liberal arts majors-turned-lawyers going up against quants and math geeks. The math geeks among us can spot stuff that is just absurdly wrong (ie, look at Harry Markopolos and Madoff – and the incompetence of the SEC), whereas the innumerate lawyer types can’t see the obvious chicanery right in front of their faces.

  20. troubled times says:

    Martin Luther split from the Catholic church 500 years ago over the church’s sale of indulgences . If you had the money you could buy your way into heaven, or never ending happiness and joy . Foxification is just that, the amount of presumption of innocence is determined by your income….

    I recently looked at bio’s and comments of 40, 50 old friends / casual acquaintances on Facebook…People from Wyckoff and Franklin Lakes NJ that were in high school in the late 60′s and early 70′s …….It looks like Foxification can’t be stopped…..Many still believe Iraq teamed up with Bin Laden.. Many believe the Gov bailout of Wall Street started under Obama…Many are zombies….You guys should take a look at your old high school crowd…See if Foxification has stolen thier brians as well

  21. b_thunder says:

    I’m much more interest if NY Fed will ever be investigated regarding the bailout of JPMorgan (ie killing and sale of Bear Sterns) and the AIG matters. Since Turbo Tax Timmy is involved, I doubt it will happen until this administration is out of office.

    my second topic of interest is when the heck will the Fed take away Goldman’s “bank holding company” status. Blankfein said it himself when he testified in the Senate: “we do not have branches.” yes, you’re not a commercial bank. give up the charter!

    as far as case against Goldie – even if charges get filed, i don’t see it going the way of Arthur Andersen. GS is for the most part a hedge fund and can survive even if most of the clients go to their competitors… obviously w/out the clients the profits will be lower, i.e. fewer people to front-run, but nevertheless, the GS will be around

  22. hammerandtong2001 says:

    And so it goes. From bad to worse, and now even worse than that.

    Arthur Andersen, the firm, went down on a “related charge” — AA never got nailed for the primary issue of accounting fraud. They went down on the charge of “obstruction of justice” due to highly-placed employees shredding documents specifically related to accounting fraud. Essentially, destroying evidence.

    Hhhmm. So is it impossible to imagine that the young, and frankly “unseasoned” Fabulous Fab, may have taken a few memos, or other materials, and tossed them into the Seine one evening? Or even someone in NY taking a box of documents home in a towncar limo to place it in the attic of the over-priced home in Scarsdale? “Memos? I don’t know what memos you’re referring to…”

    I find it difficult to believe that Treasury can continue doing business with one of five “primary dealers” which is under “criminal investigation” for fraud.

    Methinks the “ugly” is just beginning.

    .

  23. JustinTheSkeptic says:

    It’s Europe stupid.

  24. mathman says:

    Michael Moore on Larry King:

    http://www.digbysblog.blogspot.com/

  25. Jim67545 says:

    If someone tried to make the case that holding a driver’s license is not against the law, neither is driving, neither is being drunk therefore drunk driving is not against the law, I doubt it would work. So too, GS can’t disassemble the events and claim innocence.

  26. R. Cain says:

    potential Goldman miscalculation:
    they may have burned too many powerful, politically well-connected institutions.

    it’s a tall order to rip-off, without consequence, major universities, public and private pension funds, and various state, county, and municipal governments.

  27. rktbrkr says:

    What is the Martin Act? The 1921 law gives New York attorneys general the unique ability to fight financial fraud, according to Slate business columnist Daniel Gross, who cited the Legal Affairs editor (Nicholas Thompson) who wrote this account of the law several years ago. Like Gross, I’ll cite a useful definition from Thompson’s article, too:

    “The purpose of the Martin Act is to arm the New York attorney general to combat financial fraud. It empowers him to subpoena any document he wants from anyone doing business in the state; to keep an investigation totally secret or to make it totally public; and to choose between filing civil or criminal charges whenever he wants. People called in for questioning during Martin Act investigations do not have a right to counsel or a right against self-incrimination. Combined, the act’s powers exceed those given any regulator in any other state.”

  28. Goldman may face Justice Department review

    The Securities and Exchange Commission has referred its investigation of Goldman Sachs to the Justice Department for possible criminal prosecution, less than two weeks after filing a civil securities fraud case against the firm, according to a source familiar with the matter. Any probe by the Justice Department, if underway, would be in a preliminary stage. No Goldman Sachs employees involved in the mortgage-related transactions that are the focus of the SEC case have been interviewed by Justice Department prosecutors or the FBI agents who often conduct probes on behalf of prosecutors, according to a source familiar with the matter. The sources spoke on the condition of anonymity because they were not authorized to discuss the matter publicly. The Justice Department usually investigates high-profile cases of securities fraud, but the threshold for criminal prosecution is significantly higher than that of civil cases. The SEC files only civil cases

  29. rktbrkr says:

    Blankfein’s assertion that GS clients wouldn’t even be interested in KNOWING if GS was betting against the financial products they were selling them was the most laughable comment I heard all day.Literally incredible.

    GS must have shifted from denial to damage control by now, they don’t want to be on TV once a month the next 3 years or whatever, they gotta cut a deal with the feds and try and limit the damage from this case and other lawsuits against them but first & foremost they’ve got to try and slam the door on criminal prosecution.

    There will be a lot of bodies thrown under the GS bus as it rolls along to meet it’s fate.

    Who’s Next (1971)
    Won’t Get Fooled Again

    We’ll be fighting in the streets
    With our children at our feet
    And the morals that they worship will be gone
    And the men who spurred us on
    Sit in judgement of all wrong
    They decide and the shotgun sings the song

    I’ll tip my hat to the new constitution
    Take a bow for the new revolution
    Smile and grin at the change all around
    Pick up my guitar and play
    Just like yesterday
    Then I’ll get on my knees and pray
    We don’t get fooled again

  30. howard0339 says:

    Not that I know every law on the books but I’m willing to bet that lying ain’t no crime anywhere outside of Mecca. Screwing your friends and clients are strictly reciprocity in business and that stuff is strictly in the eye of the beholder, and BTW we all know that these victims pass checks that they might put a hold on daily. And as for filing this story under “Politics,” that is exactly where this obvious political posture press release belongs. In my opinion Goldman has hung themselves out to dry and why anyone will ever believe any of those brokers ever again is beyond me, but criminal? Come on, get real. Every salesman in the world would be put in jail tomorrow as would all the people involved in advertising.

  31. DeDude says:

    Yes the amazing thing is not the crime they committed, but that most of the things they committed was not a crime.

  32. Lariat1 says:

    @troubled times: I agree, same thing up here in the Hudson Valley, NY. Same time frame. It takes a lot of effort for some people to think for themselves. It takes time to research a subject and not be afraid to learn.And also to be able to accept that your original opinion could be changed. It is easier to let other people (FOX) do the thinking for you.

  33. R. Cain says:

    Although obviously premature, it could be argued that Goldman Sachs is finished.
    (see E.F. Hutton, Drexel Burnham et al.)

  34. flipspiceland says:

    Lord Blankfein, J Dimon, John Mack, Hank Paulson:

    “Money for nuthin’”

  35. mbelardes says:

    Goldman finished? Why? Because 10 senators spent 11 hours proving that they don’t understand the difference between a market maker and asset manager when it comes to fiduciary duties?

    The underlying issue is that it’s the instruments themselves that were fraudulent, not Goldman’s actions. This is why the GS guys were very open about their actions but very resistant at the insinuation CDOs and CDSs were Vegas styled bets.

    And the fact that a criminal investigation is underway over Goldman for THIS but the axe hasn’t fallen on Lehman execs for Repo-105 tells me that this IS actually just a political stunt and not about justice.

    You can YouTube a video of Erin Callan (CFO Lehman) on TV stating they are not using off balance sheet transactions (disputing David Einhorn’s correct claims) to hide toxic assets, etc. Now we find out they were clearly lying to shareholders and regulators (keep in mind Lehman was pumping earnings and issuing secondaries to cover losses during this timeframe). Where is that case? That is a slam dunk. That case would send a message to execs about fiduciary duties.

    Someone said “target rich environment above.” Why only pull the trigger on a weak (yes, weak) case that comes down to whether or not a hedge fund managers’s name should have been stamped on a prospectus for his mere recommending the basket of crap to pick the best stool samples from.

    Hmm … Repo-105 or “shitty” assets?

    On a side note, now that a criminal investigation is under way, GS employees can start pleading the 5th and GS/SEC can ask for a stay of the civil case IF they believe they will be indicted for a crime. So if either of those events happen, then I would be more inclined to believe that government had a solid case. We’ll see.

  36. hgordon says:

    @mbelardes

    Nicely stated.

    From the NYT –
    “Many in Congress have been pressing for a criminal inquiry. This week, 62 House members sent a letter to the Justice Department asking it to conduct an investigation into Goldman’s actions.”

  37. FrancoisT says:

    About a criminal prosecution of GS: Here is what I wrote on NC this PM about that.

    A criminal inquiry? In the USA circa 2010?

    Mbwahahahaha!

    When it comes to people with wealth, prosecutors consider that any punishment (other than performing deep sodomy on the wallets of hapless shareholders) otherwise deemed obvious for any member of the unwashed masses is unthinkable.

    Sounds extreme?

    Let’s see a sample from recent evidence:

    Guidant corp is a medical device maker. They sell implantable cardiac defibrillators; yup! the sort of stuff one has inside their thorax. This kind of gizmo calls for rather strict quality controls and design. (One hopes!)

    Alas, the reality was this:
    http://hcrenewal.blogspot.com/2010/04/who-guards-guardians-case-of-boston.html

    Guidant executives allegedly knew that ICDs made from 2000-2002 were at risk for short-circuiting and failing, thus making them unable to deliver potentially life saving electrical shocks meant to prevent cardiac arrests, but the company only revealed the problem in 2005. By failing to notify physicians and the public, Guidant executives let expensive and profitable, but potentially useless devices to continue to be implanted, potentially increasing the risk of sudden death for the patients who received them. Then here we noted reports that Guidant continued to ship failure-prone devices even after it had designed and started to manufacture new ICDs that were supposed to be less likely to fail.

    As an FYI, there has been 6 documented patient deaths as a result of this affair.

    Lawyers from the govermin get in the case, time elapsed and gna gna gna!

    Anyone would like to venture a guess about the outcome of this case?

    Here is what Judge Donovan W. Frank had to chew on as the core “settlement”:

    Prosecutors charged in court papers that Guidant had knowingly sold potentially flawed defibrillators. But that issue was not addressed in the plea agreement. Instead, the company agreed to plead guilty to two misdemeanor charges that related to the completeness and accuracy of its filings with the Food and Drug Administration.

    – It was not really the Guidant subsidiary that was going to plead guilty, but a new entity apparently constructed solely to “take the rap.” The company created to enter Guidant’s plea, Guidant LLC, existed only on paper.

    To his credit, the judge sent the parties packing, requesting a real settlement.

    So, aggressive prosecutors, protectors of the People and defenders of the Law?

    Res ipsa loquitur

    I could provided links to numerous other cases like this one. And that would be only in the health care field, mind you.

    So, any hope I can muster about the US govermin contemplating a criminal inquiry into Goldman Sachs, is very quickly converted into an irrepressible laughter every time I look at what is happening in the particular corner of my professional universe.

  38. FrancoisT says:

    forgot to close a bold tag
    grrrrrrrrrrrrrrrrrrrrr!

  39. engineerd1 says:

    Once the feds, determined to find evidence of wrongdoing, gain acces to internal documents, no business in free world can avoid being found guilty of something. This is why prosecutorial discretion is so important. Anybody who doesn’t see this as a political charade is not necessarily a fool, but they are letting their political bent fool them.

    Barry must have missed it, since he was so quick to link to Cramer’s views on Goldman….so I will refer all and sundry to Munger and Buffets comments on the subject at the recent shareholder meeting. Some might think they have even more credibilty than that great oracle of The Street.

  40. willymack says:

    What I want to see is a REAL criminal investigation.
    That means those arrogant bastards exchanging their three thousand dollar suits for orange jumpsuits, shackled and manacled as they’re marched off to the raunchiest federal prison in the system, and under the tender care of Bruno and Maurice.
    Who knows? Maybe this could catch on, and the bush crime family would be next.
    Remember, there’s no statute of limitations for capital crimes.
    Now, these would be changes I could believe in.