Goldman Sachs reportedly has been subpoenaed by the Manhattan district attorney, who is investigating the investment bank’s role in the financial crisis.

 

Wall Street critics have accused Goldman of knowingly selling bundles of bad mortgages to its clients while at the same time betting against the mortgage market before the crisis unfolded in 2008.

 

In April, a bipartisan report from the U.S. Senate Subcommittee on Investigations harshly criticized the work of Goldman Sachs, accusing the powerful firm of “engaging in massive conflicts of interest, contaminating the U.S. financial system with toxic mortgages and undermining public trust in U.S. markets in the months leading up to the financial crisis.” The report concluded that “The investment banks that engineered, sold, traded, and profited from mortgage related structured finance products were a major cause of the financial crisis.”

 

Several government agencies may be investigating Goldman, which is hoping to avoid indictment. In the world of high-powered investment, the mere act of indicting an institution like Goldman could destroy it. Both E. F. Hutton and Drexel Burnham Lambert collapsed after they were indicted in the 1980s, before the cases even went to trial.

 

Some investment analysts think the government, if it has enough evidence, will offer Goldman and its executives an out-of-court settlement rather than take them to trial because Goldman Sachs is too big and too powerful to be allowed to fail.

 

To date, Fabrice Tourre, a midlevel Goldman employee, has been the only person on Wall Street to be sued by the Securities and Exchange Commission for helping sell bad mortgage-securities investments.

 

The chairman and CEO of Goldman Sachs from 1998-2006 was Henry Paulson, who left to serve as Secretary of the Treasury under President George W. Bush. His place was taken by Lloyd Blankfein, who, in January 2010, admitted to the Financial Crisis Inquiry Commission that Goldman Sachs had engaged in “improper” behavior when it bet against the mortgage-based securities it was selling to investors.

-David Wallechinsky, Noel Brinkerhoff

 

Goldman Said to Get Subpoena Over Its Role in Crisis (by Andrew Ross Sorkin and Susanne Craig, Deal Book)

S.E.C. Case Stands Out Because It Stands Alone (by Louise Story and Gretchen Morgenson, New York Times)

Will Lloyd Blankfein End up in the Dock? (by John Cassidy, New Yorker)

Why No Prison for Banksters Who Caused Financial Crisis…Yet? (by David Wallechinsky and Noel Brinkerhoff, AllGov)

Wall Street and the Financial Crisis: Anatomy of a Financial Collapse (Senate Subcommittee on Investigations) (pdf)