Thursday, July 30, 2009

Goldman Sachs and other investment banks subpoenaed in fraud investigation

Senate Probes Banks for Meltdown Fraud



The Wall Street journal
Copyright 2009

WASHINGTON -- A Senate panel has subpoenaed financial institutions, including Goldman Sachs Group Inc. and Deutsche Bank AG, seeking evidence of fraud in last year's mortgage-market meltdown, according to people familiar with the situation.

The worst may not yet be over for some of America's biggest banks. As John McKinnon reports, some of the country's biggest lenders, including Goldman Sachs, have been subpoenaed by a Senate committee as part of a fraud investigation.

The congressional investigation appears to focus on whether internal communications, such as email, show bankers had private doubts about whether mortgage-related securities they were putting together were as financially sound as their public pronouncements suggested. Collapsing values for many of those securities played a big role in precipitating last year's financial crisis.

According to people familiar with the matter, the Senate Permanent Subcommittee on Investigations also has issued a subpoena to Washington Mutual Inc., a Seattle thrift that was seized by regulators in last year's financial crisis and is now largely owned by J.P. Morgan Chase & Co. It appears likely that several other financial institutions also have received subpoenas. Subcommittee investigators declined to comment. A Goldman Sachs spokesman declined to comment on the subpoena. Deutsche Bank declined a request for comment.

J.P. Morgan Chase spokesman Thomas Kelly declined to comment on whether the firm, which acquired the banking assets of Washington Mutual last September, had received any subpoenas, saying only "we cooperate with government agencies."

A subpoena from the subcommittee raises a number of factual questions and asks for various company correspondence, according to a person who reviewed it.

A Senate panel subpoenaed financial firms, including Goldman, seeking evidence of fraud in the mortgage market meltdown.

The subpoenas are the latest in a series of moves by Congress to trace the roots of the financial crisis. Goldman has been a favorite target for criticism in Washington.

A House panel voted this week to allow regulators to bar banks from offering executive-pay plans that encourage too much risk. The move came after Goldman Sachs reported record profits for the second quarter and said it has set aside $11.4 billion during the first half of the year to compensate employees.

Earlier this week, a bipartisan group of 10 members of Congress sent a letter to Federal Reserve Chairman Ben Bernanke, questioning whether Goldman Sachs is being too lightly regulated and too generously backed by taxpayers.
An idea for taxing high-value health insurance plans has even become known on Capitol Hill as the "Goldman Sachs tax," after criticisms of its executives' $40,000 health plans. A Goldman Sachs spokesman declined to comment on the criticisms from Congress.

The subcommittee is headed by Sen. Carl Levin (D., Mich.), who has been a driving force behind many of its probes.

© 2009 The Wall Street Journal:

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