US will not prosecute Goldman Sachs for fraud

The US Justice Department has said it will not prosecute Wall Street firm Goldman Sachs or its employees in a financial fraud probe.

In a written statement on Thursday, the department said it conducted an exhaustive investigation of allegations brought to light by a Senate panel investigating the 2008-2009 financial crisis.

“The department and investigative agencies ultimately concluded that the burden of proof to bring a criminal case could not be met based on the law and facts as they exist at this time,” the department said.

But the department added that if additional or new evidence were to emerge, it could reach a different conclusion about prosecuting Goldman.

A Senate subcommittee chaired by Senator Carl Levin in April 2011 found that Goldman marketed four sets of complex mortgage securities to banks and other investors but that the firm failed to tell clients that the securities were
very risky.

The Senate panel said Goldman secretly bet against the investors’ positions and deceived the investors about its own positions to shift risk from its balance sheet to theirs.

‘Misled Congress’

The Justice Department’s decision capped a good day for Goldman as the Securities and Exchange Commission decided not to file charges against the firm over a $1.3bn subprime mortgage portfolio.

At the same time, the Justice Department’s decision ensured that the Obama administration will continue to feel political heat, particularly from the liberal wing of the president’s own party, for not having brought more prosecutions in the
financial crisis.

The Senate panel probe turned up company emails showing Goldman employees deriding complex mortgage securities sold to banks and other investors as “junk” and “crap”.

Levin said during his subcommittee’s investigation that he believed that Goldman executives “misled the Congress” and that Goldman “gained at the expense of their clients and they used abusive practices to do it”.

Levin questioned the accuracy of testimony Goldman Sachs executives gave to Congress about whether the firm steered investors toward mortgage securities it knew likely would fail.

Goldman CEO Lloyd Blankfein told the Senate panel that the company did not bet against its clients and could not survive without their trust.

The company lost $1.2bn in the mortgage meltdown in 2007 and 2008 that touched off the financial crisis and the worst recession since the 1930s, Blankfein testified. He also insisted that Goldman wasn’t making an aggressive negative
bet, or short sale, on the mortgage market’s slide.

False information

In 2010, Goldman agreed to pay $550m to settle civil fraud charges by the SEC of misleading buyers of mortgage-related securities.

The agreement applied to one of the four deals cited by the Senate subcommittee.

The Justice Department said it would aggressively pursue investigations of “matters affecting our financial system”.

The department pointed to its probe into the manipulation of the London Interbank Offered Rate. Britain’s Barclays bank admitted in June that it had submitted false information to keep the rate low.

Barclays was fined $453m in settlements with the Justice Department, the US Commodity Futures Trading Commission and British regulators.