Goldman Sachs faces new credit crisis inquiry
Friday 03 June 2011
Goldman Sachs has received a subpoena from the Manhattan District Attorney's office, adding further legal pressure on the investment bank over its actions in the lead-up to the financial crisis.
Cyrus Vance, the District Attorney, is seeking information from Goldman relating to the conclusions of a damning Senate investigation into the company and its Wall Street peers earlier this year. The Senate Permanent Sub-committee on Investigations said the bank had sold mortgage derivatives to its clients while at the same time betting that the mortgage market was about to tank, and it also said Goldman executives may have lied under oath at Senate hearings on the subject.
Last year, Goldman paid $550m to settle fraud charges from the Securities and Exchange Commission relating to one particular mortgage derivative, in what the bank hoped would draw a line under the controversy over its actions. It has become clear that the settlement achieved no such thing. The US Justice Department is also investigating the bank.
As Wall Street's most powerful institution, Goldman has been the lightning rod for public and political anger over the excesses that led to the financial crisis of 2007-2009. Last night, the company said: "We don't comment on specific regulatory or legal issues, but subpoenas are a normal part of the information request process and, of course, when we receive them we co-operate fully."
Subpoenas are formal requests for information, and do not signal that civil or criminal charges are likely. Goldman has always maintained that – with the exception of incomplete disclosures in one mortgage deal – it did nothing wrong during the credit bubble and bust, and that it managed any conflicts of interests between the bank and its clients properly.
Analysts disagree over whether the latest investigations are likely to result in charges and significant fines. "They want Goldman Sachs to show some sort of contrition," said Dick Bove of Rochdale Securities. "The blood is in the water and the sharks will all come."
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