More bad news for Goldman Sachs

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Federal prosecutors in New York have launched a criminal investigation into Goldman’s structuring and marketing of a collateralized debt obligation that cost investors $1 billion.  For the time being, the criminal probe involves only the U.S. Attorney’s Office in Manhattan, and not the Federal Bureau of Investigation or other federal agencies.

The investigation stems from a criminal referral by the Securities and Exchange Commission.   The SEC brought civil charges against Goldman two weeks ago, which followed a highly-publicized questioning of Goldman executives by the U.S. Senate committee.   

The investigation, even though at a preliminary stage, opens a momentous new front in the legal aftermath of the near-meltdown of the financial system.     In the view of some legal experts, the SEC civil fraud case against Goldman — even with the lower required burden of proof than in a criminal case — also could be difficult and faces pitfalls.     To prove it, the SEC must show that Goldman misled investors or failed to tell them material facts that would have affected their financial decisions.

According to some experts, the greatest challenge will be boiling the case down to a simple matter of fraud: the issues involved are so complex that Goldman may be able to introduce enough complicating factors to shed some doubt on the SEC’s claims.

Goldman has denied any wrongdoing, and the firm’s top executives on Tuesday reiterated their belief that the firm did nothing wrong at a Senate committee hearing.

Anna Timone (195 Posts)

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