When Lloyd Blankfein, the chief executive of Goldman Sachs, appeared before a Senate committee last year, the activist group Code Pink stormed the room wearing prison garb and waving "Wanted" posters with the executive's face plastered on them.
With public fury at bankers at fever pitch, many Americans hoped the scene would be replicated for real some day, with Mr Blankfein and other Wall Street grandees paraded in cuffs on their way to jail. For investors, though, the possibility of major criminal action against banks or their senior staff has always seemed remote, and more remote with every week that passes.
But now we know at least one person is taking the possibility of criminal action very seriously indeed, and that is Lloyd Blankfein himself.
It has emerged that he has engaged the services of one of America's most powerful white-collar defence attorneys, amid accusations he perjured himself that day in the Senate and that he presided over other criminal activity at the bank. He and the bank deny all these accusations, but he is certainly preparing the ground in case he ever has to say so in court.
As for those investors who had been so sanguine about Goldman's prospects of emerging from the legal thicket of credit-crisis investigations and lawsuits without a big scratch – they are re-assessing that view. The bank's shares slumped 4 per cent on news of Mr Blankfein's legal hire, and they had not recouped any of that ground by lunchtime in New York yesterday. Instead, investors spent the day reminding themselves just how many legal issues still dog the company, and debating how serious might be the hit should the chief executive step down to spend more time with his new lawyers.
Mr Blankfein is being advised by Reid Weingarten of the firm Steptoe & Johnson, whose previous clients include notorious fraudsters Bernie Ebbers, the CEO of the bankrupt telecoms firm WorldCom, and Richard Causey, the accounting officer at the collapsed energy giant Enron. Why has Mr Blankfein lawyered up? He acted, Goldman said, after the Senate report resulting from the hearings at which he testified in 2010. The Permanent Subcommittee on Investigations issued its report into the causes of the credit crisis in April, in which it used Goldman Sachs as a "case study" into how subprime mortgages were sliced and diced into new kinds of derivatives, and how those toxic derivatives were sold to unsuspecting investors who lost billions of dollars when the underlying loans started to go sour.
Goldman was among the most aggressive producers and salesmen of those derivatives, and was unusual on Wall Street in not losing a fortune itself. The Senate report accused the bank of taking massive bets against the same securities that it was enthusiastically marketing to its clients, at one point making a $3.7bn (£2.25bn) killing. Carl Levin, the subcommittee's chairman, reserved his harshest words for the executives of Goldman, including Mr Blankfein, who had insisted under oath that the bank did not bet against its clients.
Their testimony was that the bank had itself been heavily exposed to mortgage-related losses overall, though there were times when it was "net short" – that is, had a position that would benefit from mortgage-related investments going down in value. Senator Levin said the executives "clearly misled their clients and they misled Congress", and he referred his report to the Department of Justice, demanding it examine whether Mr Blankfein perjured himself or obstructed a Senate inquiry.
"As is common in such situations, Mr Blankfein and other individuals who were expected to be interviewed in connection with the Justice Department's inquiry into certain matters raised in the report hired counsel at the outset," Goldman said.
The referral and the Justice Department investigation, with which the bank said it was co-operating, were mentioned in Goldman's latest quarterly regulatory filing, the "legal proceedings" section of which runs to 12 pages, including three on "mortgage-related matters". Most of the legal battles will be fought in civil courts, having been brought by clients or shareholders who say they were misled, but Goldman does face at least one other potential criminal investigation, in South Korea, as a result of a legal claim by a life-insurance firm there that invested in its mortgage products.
Last year, Goldman paid $550m to settle civil charges that it misled investors in one sub-prime mortgage investment vehicle. The Securities and Exchange Commission, the regulator which extracted that fine, said at the time that it did not preclude further action on other mortgage-related trading activity at Goldman. Manhattan prosecutors also subpoenaed Goldman in June seeking information on similar subjects.
Life after Lloyd?
With Lloyd Blankfein in his sixth year at the helm of Goldman Sachs, and legal pressures continuing to dog him, jockeying has begun inside the company among his potential successors as chief executive. Recent reports – denied by the company – have suggested a change could come as early as the end of this year, but the promotions of some promising executives on the rungs below have only intensified speculation.
If Mr Blankfein were forced out suddenly, investors believe, the chief executive job would fall to his long-time deputy, Gary Cohn, who came up with him through the ranks of Goldman's aggressive trading operations and who has been the chief internal "problem solver" under his leadership.
Handing the torch to Mr Cohn would not be a generational shift at the top, however. If that is the board's intention, say analysts, then strong candidates include Michael Sherwood. Mr Sherwood is Goldman's top banker in the UK, educated at Westminster School and Manchester University, who joined the firm on graduation 25 years ago. In March, he was made chairman of Goldman's powerful partnership committee.
And if appointing a Brit is too shocking, then John Weinberg, currently co-head of the investment banking division, would be a much more soothing choice. His father and grandfather are both former Goldman chief executives. His appointment would also be a powerful signal that Goldman is downplaying the trading operations in favour of its roots as a blue-blooded investment bank and corporate adviser.
Other potential successors include Michael Evans, who was promoted to run Goldman's business standards committee, a post of heightened sensitivity given the focus on the firm's ethics and its promise to restore trust. There is also David Solomon, another investment banking head, and Pablo Salame, one of the firm's sales and trading chiefs, who is rumoured to be relocating to New York.