Goldman Sachs Bank USA, which is already undergoing a civil fraud suit investigation by the Securities and Exchanges Commission (SEC) could face criminal charges from the U.S. Attorney in Manhattan, according to unnamed sources at the Wall Street Journal.
The Civil Suit
The current allegations brought against Goldman Sachs Bank USA are that they firm defrauded investors by knowingly withholding key information on certain subprime mortgage backed securities, effectively hedging against the performance of their own collateralized debt obligation (CDO).
Also implicated in the suit is hedge fund Paulson & Co., which was involved in the selection of the portfolios as well as taking a position betting against the fund.
Possible Criminal Charges
The exact details of the potential criminal charges are unclear, but according to an unnamed source at the Wall Street Journal, the U.S. Attorney in Manhattan is looking into previous deals by Goldman Sachs Bank USA to see if there are trades that might warrant investigation. Particularly of interest are previous mortgage trades made by the company.
The SEC only has the capacity to bring civil suits, so if it decides that the Goldman Sachs Bank USA case requires criminal charges it will defer the case to the U.S. Department of Justice. The biggest challenge in bringing criminal charges will be proving that the firm knowlingly committed fraud, acting with intent to break the law.