Racheting up pressure on Goldman Sachs two days after its executives were grilled and rebuked in public, the US Justice Department has opened a criminal investigation of the Wall Street powerhouse over mortgage securities deals it arranged.
The new criminal inquiry follows civil fraud charges filed by the government against Goldman two weeks ago and as the US Congress pushes toward enacting sweeping legislation aimed at preventing another near-meltdown of the financial system.
The investigation by the US attorney’s office in Manhattan stems from a criminal referral by the Securities and Exchange Commission (SEC), a knowledgeable person said on Thursday. The person spoke on condition of anonymity because the inquiry is in a preliminary phase.
The SEC brought civil fraud charges against Goldman and a trader in connection with the transactions in 2006 and 2007. The agency alleged the firm misled investors by failing to tell them the subprime mortgage securities had been chosen with help from a Goldman hedge fund client, Paulson & Co, that was betting the investments would fail.
Goldman and the trader, Fabrice Tourre, have denied the charges and said they will contest them.
Word of the Justice Department action came a day after a group of 62 House of Representatives lawmakers asked Justice to conduct a criminal probe of Goldman.
SEC spokesman John Nester declined any comment on the matter, as did Yusill Scribner, a spokeswoman for the US attorney’s office in Manhattan.
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.”
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