According to several media reports, the Securities and Exchange Commission (SEC), which a week ago initiated a civil fraud action against Goldman Sachs, has now also referred the matter to the Department of Justice for possible criminal prosecution.
From the Washington Post, SEC sends Goldman case to prosecutors:
The Securities and Exchange Commission has referred its investigation of Goldman Sachs to the Justice Department for possible criminal prosecution, less than two weeks after filing a civil securities fraud case against the firm, according to a source familiar with the matter.
Any probe by the Justice Department would be in a preliminary stage. No Goldman Sachs employees involved in the mortgage-related transactions that are the focus of the SEC case have been interviewed by Justice Department prosecutors or the FBI agents who often conduct probes on behalf of prosecutors, according to a source familiar with the matter. . . .
The Wall Street Journal and Bloomberg News reported Thursday night that the U.S. Attorney’s Office in Manhattan had followed up on the request and opened a criminal probe. The office declined to comment.
. . .
Goldman has steadfastly rejected charges that it committed securities fraud. Tourre has also denied the charges. Goldman says ACA and IKB were sophisticated investors and disclosure of Paulson’s role was not legally required.
Proving a criminal case could be challenging given that prosecutors must show “beyond a reasonable doubt” that Goldman and its employees committed fraud, compared to the threshold for a civil case, which only requires a “preponderance of evidence.”
Under civil law, the SEC doesn’t have to prove Goldman set out to defraud investors — only that it did. But criminal law would require that prosecutors show that Goldman maliciously planned to mislead its investors.
None of the reports provides any details on whether the investigations will focus on the specific allegations raised by the SEC or may include a broader inquiry into other concerns raised by the Senate Oversight Subcommittee (Levin) hearing Tuesday which questioned several Goldman executives, including its Chairman/CEO and Chief Financial Officer. Moreover, there’s no indication yet that a broader investigation was already underway. From Bloomberg:
The Federal Bureau of Investigation hasn’t opened a criminal investigation, said a U.S. official who spoke on condition of anonymity and wasn’t authorized to comment publicly on the matter. The Postal Inspection Service, which also could investigate such cases, doesn’t have any open probes into Goldman, said Tom Boyle, a spokesman for the agency in New York.
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.
Yves Smith has a take on the general “predatory” nature of Goldman’s (and other’s) dealings.
Bloomberg, Goldman scrutinized by prosecutors reviewing SEC case
Wall Street Journal, Criminal Probe Looks into Goldman Trading