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May 21, 2011, 04.45 PM IST
US investigators hunting for culprits in the financial crisis are keeping Goldman Sachs in their crosshairs.
The US Securities and Exchange Commission got off an early shot when they settled with Goldman last year for USD 550 million in the most high-profile enforcement case to emerge from the 2007-2009 financial crisis.
Almost a year later, the drumbeat is growing louder for investigators to nail Goldman again, fuelled by a Senate report, even though regulators haven't taken a first big swipe at other major Wall Street players.
"Goldman is a high-octane, high-profile target," said Dick Beckler, a partner in Bracewell & Giuliani's white-collar defence practice.
The SEC's Goldman case, which accused the firm of misleading clients who invested in a subprime mortgage-backed product known as "Abacus," was a big win for the agency.
The SEC is under intense pressure along with the Justice Department to hold financial players accountable for the crisis that required a USD 700-billion taxpayer bailout and sent the economy into a prolonged swoon still being felt with 9-percent unemployment.
The SEC and DOJ have so far failed to bring a comparable case against other major financial firms, such as American International Group, which required more than USD 180 billion in government help, or Citigroup, which got a USD 45 billion bailout.
Yet buzz has grown that Goldman is again public enemy No. 1 for investigators, even after the SEC settlement.
"That was a civil case, and you don't get a sense of vengeance and satisfaction from civil settlements," said Robert Hillman, a law professor at the University of California, Davis.
He said Goldman may jump again to the top of investigators' lists because it plays better as a culprit than other financial players. "They're unpopular. They're big. They're sort of the face of Wall Street. They're very profitable. And there's the perception they did quite well from the financial crisis."
Last week, Goldman shares fell 3.5% in one day after veteran bank analyst Richard Bove downgraded the shares to "sell" from "neutral," saying "it now appears that the pressure on the Justice Department to bring a criminal lawsuit against Goldman is building to a high pitch." A Standard & Poor's analyst also downgraded the company's shares.
The Bove call dovetailed with an article in Rolling Stone describing findings from a recent investigation led by Senator Carl Levin, and the story said prosecutions could follow.
The New York attorney general is also tightening the screws on Goldman, requesting information from Goldman, Bank of America and Morgan Stanley on their mortgage securitization practices, according to a source familiar with the matter.
Goldman itself is bracing for a criminal probe, according to a Wall Street Journal article on Friday, and expects subpoenas from the Justice Department could come within days.
Goldman declined to comment, as did the Justice Department.
Any such subpoenas would closely follow the pressure Levin has put on investigators by recently forwarding his Senate Permanent Subcommittee on Investigation's 639-page report.
"In my judgment, Goldman clearly misled their clients and they misled Congress," Levin told an April media briefing.
Levin told Reuters on Tuesday, "Where there is evidence in those reports that we think might lead to either administrative action or prosecution, we forward those reports."
University of California's Hillman said one would hope investigators don't focus their energy because of outside pressure, but in reality the Justice Department is as political as any federal agency.
"I don't think the Justice Department has the strength to resist the political pressure," Hillman said.
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