WASHINGTON (AP) - The U.S. attorney's office in Manhattan is
conducting a criminal investigation of Goldman Sachs over mortgage
securities deals the big Wall Street firm arranged, a knowledgeable
person said Thursday.
The person said the probe stems from a criminal referral by the
Securities and Exchange Commission. The source spoke on condition
of anonymity because the inquiry is in a preliminary phase. The SEC
earlier this month filed civil fraud charges against Goldman and a
trader in connection with the transactions, alleging it misled
investors by failing to tell them the subprime mortgage securities
had been chosen with help from a Goldman hedge fund client that was
betting the investments would fail. Goldman has denied the charges
and said it will contest them in court.
News of the action came a day after a group of 62 House
lawmakers, including Judiciary Committee Chairman John Conyers,
D-Mich., asked Justice to conduct a criminal probe of Goldman.
SEC spokesman John Nester wouldn't confirm or deny that the
agency had made a referral to the Justice Department for a criminal
investigation. He declined any comment on the matter, as did Yusill
Scribner, a spokeswoman for the U.S. attorney's office in
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
The Justice Department move was the latest in a dramatic series
of turns in the Goldman saga, which has pitted the culture of Wall
Street against angry lawmakers in an election year, in the wake of
the financial crisis that plunged the country into the most severe
recession since the Great Depression of the 1930s.
Also on Thursday, following days of failed test votes, the
Senate lurched into action on sweeping legislation backed by the
Obama administration that would clamp down on Wall Street and the
sort of high-risk investments that nearly brought down the economy
And two days earlier, a daylong showdown before a Senate
investigative panel put Goldman's defense of its conduct in the
run-up to the financial crisis on display before indignant
lawmakers and a national audience. The panel, which investigated
Goldman's activities for 18 months, alleges that the Wall Street
powerhouse bet against its clients - and the housing market - by
taking short positions on mortgage securities and failed to tell
them that the securities it was selling were at very high risk of
Goldman CEO Lloyd Blankfein testily told the investigative
subcommittee that clients who bought the subprime mortgage
securities from the firm in 2006 and 2007 came looking for risk
"and that's what they got."