Following the SEC’s fraud charges against the firm, prosecutors have opened up a criminal probe of Goldman Sachs (GS), the WSJ is reporting this evening.
There are several things to note here, particularly the fact that an initial probe is no guarantee that charges will actually filed. In fact, such initial probes are common after civil charges are brought.
Although the ramifications of such a case would be enormous, the significant weaknesses and ambiguities that have emerged in the SEC’s case may make prosecutors gun-shy.
But the Goldman probe presents a significant challenge for the government. Prosecutors in the Brooklyn office of the U.S. Attorney last year lost a high-profile fraud case against two former Bear Stearns Cos. executives, in the first major criminal case linked to the financial meltdown.
Prosecutors had accused the Bear Stearns employees of lying to investors in 2007 about the health of two funds that eventually collapsed. The case centered on what the government viewed as incriminating emails indicating the traders knew the mortgage market would fall but didn’t disclose that view to investors.
To bring any criminal charges in the Goldman matter, prosecutors would need to believe they had gathered evidence that showed that the firm or its employees knowingly committed fraud in their mortgage business. Proving such intent to break the law typically is the toughest hurdle for prosecutors to clear.