WSJ now reporting that GS shares have fallen 7%.
April 30 (Bloomberg) — Goldman Sachs Group Inc. fell in New York trading after reports that federal prosecutors are weighing criminal fraud charges against Wall Street’s most profitable firm and the stock was downgraded to “neutral” from “buy” at Bank of America Corp.
Goldman Sachs dropped $8.67, or 5.4 percent, to $151.57 at 9:45 a.m. in New York Stock Exchange composite trading. The shares, which doubled last year, have slumped 18 percent since April 15, the day before the U.S. Securities and Exchange Commission announced a civil lawsuit alleging the bank misled investors in a mortgage-linked investment.
Federal prosecutors in New York are investigating transactions by Goldman Sachs to determine whether to pursue a criminal fraud case, according to two people familiar with the matter. The review, which lawyers say is common in such a high- profile case, is being done by the U.S. attorney in Manhattan, said the people, who weren’t authorized to comment and spoke on condition of anonymity.
“We continue to believe that GS has long-term earnings power beyond what is discounted in the share price,” Guy Moszkowski, an analyst at Charlotte, North Carolina-based Bank of America, wrote in a report today. “However, it is very difficult to see the shares making further progress until the matter has been resolved.”
Bank of America also reduced its share-price estimate on Goldman Sachs to $160 from $220, according to Moszkowski.
The SEC suit said the bank created and sold collateralized debt obligations linked to subprime mortgages in early 2007, as the U.S. housing market faltered, without disclosing that hedge fund Paulson & Co. helped pick the underlying securities and bet against the vehicles. ….
Goldman Sachs Chief Executive Officer Lloyd Blankfein said in an interview with CBS News this week: “It is my belief that nothing unethical and nothing illegal has happened, but I will tell you if I discovered something like this, or any senior person at Goldman Sachs discovered illegal or unethical behavior, we would eliminate that from the firm.”
Two former prosecutors for the U.S. attorney’s office in New York, who spoke on condition of anonymity, said prosecutors have their own investigators who may be examining the case before determining whether to involve the FBI or postal inspectors. The SEC may have provided documents and other information to prosecutors gathered as part of its investigation, allowing them to assess whether a criminal case could be made, they said.
Sixty-one House Democrats and one House Republican, led by Representative Marcy Kaptur, an Ohio Democrat, sent a letter to the Justice Department on April 23 asking Attorney General Eric Holder to investigate Goldman Sachs, if the Justice Department wasn’t already. The department will review the letter, Alisa Finelli, a spokeswoman, said in an April 27 e-mail.