Prosecutors in the U.S. Attorney’s Office for the Southern District of New York would have been remiss had they not opened a criminal investigation into possible secruties fraud in mortgage trading at Goldman Sachs, two of their former colleagues said today.
Word of the SDNY criminal probe leaked out on Thursday, nearly two weeks after the Securities and Exchange Commission filed a suit against the firm alleging the company defrauded customers who bought investments tied to risky mortgages.
The fact that criminal charges have not already been filed by SDNY’s Securities and Commodities Task Force is a clear sign that there was no smoking gun in the case, one former prosecutor said.
“If there was a real immediate threat, SDNY prosecutors would have issued a criminal charges the same day the SEC filed its civil securities fraud case against Goldman,” said a longtime former SDNY prosecutor. “My guess is there was tenion between the SEC and the DOJ and the SEC said, ‘F–k it, let’s go ahead.’”
The FBI opened its own probe of the Goldman transactions weeks ago, according to law enforcement sources cited in a Washington Post story today. A separate investigation is being conducted by SDNY’s 20-lawyer securities task force headed by Assistant U.S. Attorney Christopher Garcia and his deputy, Marc Berger. Janice Oh, deputy public information officer for the SDNY, declined to comment on which line attorneys had been assigned to the probe.
The SDNY’s Goldman probe is playing out no differently than any other similar securities case, two former prosecutors said. Criminal Division Chief Richard Zabel or task force chief Garcia assigned the probe to a relatively unburdened line lawyer who in turn issued one or more subpoenas.
“They would be remiss not to cut a subpoena,” the former prosecutor said. “The press is overreacting to all this. Everyone needs to take a step back.”
Another former SDNY prosecutor, who headed a task force in the office, agreed.
“You can’t read much into anything so far,” said the former task force chief who spoke on condition of anonymity. “In a case with this kind of profile, there’s likely to be an inquiry of a criminal nature. A responsible prosecutor is going to kick the tires. We have yet to see if there will be any significance attached to it.”
Among the SDNY prosecutors best-suited to handle the Goldman probe, one former prosecutor said, are Assistant U.S. Attorneys Maria Douvas and Nick Goldin. Other candidates include special counsel Bonnie Jonas or Assistant U.S. Attorneys Julian Moore and William Stellmach. Other task force prosecutors including Jonathan Streeter, Marc Litt and Lisa Baroni are busy working on the Galleon and Madoff cases.
SEC Enforcement Chief Robert Khuzami, himself a former SDNY prosecutor, most likely referred the SEC suit to Garcia before filing it on April 16, according to former SDNY prosecutor Douglas Jensen of Park & Jensen LLP in New York.
“The way it usually works is the SEC makes a phone call to the task force chief — in this case Chris Garcia — and says, ‘We’ve got a probe on x, are you interested?”’ said Jensen, whose tenure as a SDNY prosecutor overlapped Khuzami’s. “It’s not a formal process where members of the task force meet with higher-ups.”
Goldman spokesman Lucas Van Praag told Bloomberg Friday that the firm was “not surprised by the report of an inquiry,” and plans to “cooperate fully with any request for information.”
