DOJ, SEC Are Now Reviewing Senate Findings On Goldman

Carl Levin wasn't kidding when he said he would refer Goldman to another set of Goldman subordinates: The DOJ and the SEC. Sure enough, as Bloomberg reports, "Senators Carl Levin and Tom Coburn, the Democratic chairman and senior Republican on the Permanent Subcommittee on Investigations, have signed a referral letter asking the agencies to examine the panel’s report, Levin said today in an interview." And now Goldman can finally pull all those high-CPM paying ads (for which the FT is very grateful) with photos of puppies and Ethiopian kids on them: obviously the humanitarian PR campaign has been an abysmal failure, and in fact is making the firm appear even shadier. "The scrutiny is a setback for Goldman Sachs, which hired lawyers, lobbyists and public relations specialists to monitor the two-year investigation and tamp down any controversy that arose from the subcommittee’s conclusions." On the other hand, as presaged in the first sentence with the keyword "subordinates" it is obvious that absolutely nothing actual will come out of this. Sure, someone may end up paying a fine that will amount to less than one day's worth of Goldman prop profits, but someone going to jail? Please...

From Bloomberg:

A formal referral from the Senate is “much more than a symbolic gesture” because it would prompt an agency to put the matter “at the top of its list,” said Robert Hillman, a professor at the University of California, Davis, School of Law.

For Goldman Sachs, “the question is how much pain they’re going to have to endure with the public spotlight for these revelations, and that depends in part how long the government’s willing to drag this out,” said James Cox, a securities law professor at Duke University School of Law.

Still, Cox said he is “very skeptical” that the examinations by the agencies will ultimately lead to new claims against Goldman Sachs, which last year paid $550 million to settle SEC claims related to its marketing of the complex securities known as collateralized debt obligations.

Elsehwere, Eric Holder took some time from his busy speculator hunt campaign to answer a question on why the DOJ will do absolutely nothing with this development:

Attorney General Eric Holder, testifying before the House Judiciary Committee today, confirmed that his department is scrutinizing the report. Two people briefed on the matter confirmed that the SEC enforcement division is also studying it.

Holder, in his comments, didn’t offer any specifics though he did single out the New York-based bank in his remarks.

“The department is looking right now at the report prepared by Senator Levin’s subcommittee that deals with Goldman Sachs,” Holder said.

When the report was released, Levin said he wanted the Justice department and the SEC to examine whether Goldman Sachs violated the law by misleading clients who bought CDOs without knowing the firm would benefit if they fell in value.

Apparently, as part of this most recent round of discovery, we will learn how more 27 year old VPs who singlehandedly operated the firm's CDO sales division, will have bashed the housing market even as they told all their clients to get into it.

According to the people briefed on the SEC’s review of the Senate report, who spoke on condition of anonymity because the matter isn’t public, investigators at the agency will scrutinize interviews, e-mails and other confidential documents that surfaced in the inquiry. While much of that evidence was seen by the SEC before its 2010 settlement, some is new, the people said.

Hillman, the law professor, said that given Goldman Sachs’s earlier settlement, the SEC or Justice Department would likely have a high bar for bringing a case against the bank.

In resolving that case, Goldman Sachs admitted no wrongdoing and said in a regulatory filing it “understands that the SEC staff also has completed a review of a number of other Goldman mortgage-related CDO transactions and does not anticipate recommending any claims against Goldman or any of its employees.”

In the meantime, the SEC porn overlords are at it again, trying to negotiate settlements for jobs.

The SEC’s enforcement division is “certainly free to revisit that, but the odds are that it won’t unless something very new comes out in the way of facts,” said Hillman. “The SEC has probably taken its major step with Goldman already.”

One can naturally hope something comes out of this. Or, one can know just how business is done in crony capitalist America, and all hope abandon. At this point we are leaning far to the latter.

For those interested, below is a trancript with notable quotables from the House Committee on the Judiciary, in which carbonite fan #1 Eric Holder was testifying.






May 03, 2011



     DEUTCH: Thank you, Mr. Chairman.

     General Holder, thank you for being here. The Wall Street Journal reported today that the U.S. has filed a lawsuit against Deutsche Bank for lying repeatedly about the quality of mortgages so that they could profit from their resale.

     According to the lawsuit, when selecting mortgages from the Federal Housing Administration's insurance program, Deutsche Bank did not consider whether the borrowers would be

able to repay.

     Including violation of Federal Housing Administration's mortgage insurance program, these government insured mortgages were then sold off, earning the bank a massive profit while leaving homeowners to face foreclosure and the government on the hook to pay billions of dollars in insurance claims.

     The claims are startling, and the charges highlight the efforts to seek profit at any cost while leaving thousands of people and their families to lose their homes and the taxpayers being forced to pay for the bank's actions.

     First, I'd like to commend you for the department's vigorous pursuit of these charges against Deutsche Bank, and I'd like to ask whether -- first, whether the department is

investigating any other large banks and possible deceptive actions that they may have taken to fuel the mortgage crisis that the country's been facing. We'll start with that.

     HOLDER: We have a very active program under way that looks -- looking at a variety of players in the mortgage field. We've brought a number of cases already. There are a number of investigations that are -- that are pending.

     DEUTCH: Next, will the department pursue criminal charges that could result in in-jail time for the heads of these larger banks and servicers, if it's found that they knowingly took actions like those described in the lawsuit filed against Deutsche Bank?

     HOLDER: Yes, I mean, the scrutiny that we would bring would not simply be at the organizations and be looking to punish the organizations. If there are individuals who have taken actions that would warrant individual liability, that is something that we will pursue as well.

     DEUTCH: And -- and if I could just pursue one possible line of prosecution that's been raised, I'd love your thoughts on it. And that is under Sarbanes-Oxley, the requirements under Sarbanes-Oxley that executives at Wall Street firms have to establish and maintain adequate systems of internal control, that they've got to regularly test those controls to make sure that they are adequate.

     And, as I understand it, that statute provides that in the case of knowingly making false claims, one would be subject to fines of up to $1 million and imprisonment of up

to 10 years. And then if those claims were willful, those violations were willful, fines then of up to $5 million and jail time of up to 20 years in prison.

     Is this the -- would this be the basis of potential claims against individuals in connection with the mortgage foreclosure cases that are being pursued?

     HOLDER: Those are potential statutes. There are other statutes that we can bring, I mean, some as old as and tried and true as wire fraud and mail fraud. I mean, there are a

whole variety of tools that we have, including those that you have mentioned, and we will try to make use of all of those as we continue in these investigations.

     DEUTCH: And so as -- as you pursue these claims, at what point is the determination made? Obviously, my colleagues asked, others have asked. It's certainly been the big topic

of conversation.

     While there is a billion-dollar case that's been filed today, which I applaud you for, given the -- the vast array of potential claims that could be -- individual claims that could be brought, that would bring the potential of criminal violations. When might we expect to -- to see some of those cases filed as well?

     HOLDER: Well, it's hard to predict. You know, we are serious about the investigating that we are doing, and it's always hard to determine exactly when these cases will -- when decisions will be made easier to prosecute or to decline prosecution.

     All I can tell you is that we are looking at these cases seriously. We are going to pursue them aggressively, and as soon as we can make a determination and share that, you know, with the American people, we will.

     DEUTCH: So then there is. Just to conclude, General Holder, there is -- we should know, the members of this committee, the American people should -- should know that your Justice Department is vigorously investigating these potential claims and that under Sarbanes-Oxley and a whole array of other statutes, the possible -- the possibility for

criminal prosecution against individuals in connection with the mortgage foreclosure crisis is real, and we should look forward to the potential of those cases being brought.

     HOLDER: I mean, I don't want to over promise, but the possibility that those cases could be brought, yes, that is certainly the case. I mean, we are in the process of looking at a whole variety of these matters, and it is possible that criminal prosecutions will result. Civil actions might result.

     We're going to try to take whatever enforcement action we can to try to hold people responsible where that is appropriate.

     DEUTCH: Thank you.

     And I yield back, Mr. Chairman.


CONYERS:  Now for the things that we want you to improve on. I start off with the fact that the worst economic upheaval since The Depression, with all the suffering and damage that its caused citizens and their family, there is to my knowledge not one single prosecution on any of the Wall Street barons that have created this economic mess.


LOFGREN: Now I raise this because many of us, when we go home every week, get this question from our constituents.

     As far as we can tell, the department has not brought a single prosecution of a high-ranking Wall Street executive or major financial firm in the wake of the Wall Street scandal that contributed to the global economic crisis.

     So it looks to me that the department is spending its resources prosecuting nannies and busboys who are trying to get back to their families, illegally reentering.

     And yet we have not brought any prosecutions on the bandits on Wall Street who brought the nation and the world to the brink of financial disaster. Could you explain these priorities, Mr. Attorney General?

     HOLDER: Well, there's a lot packed into that question. The fact that there are so many prosecutions along the border is an indication of the nature of the problem that we


     This administration has always stood for a comprehensive approach to...

     LOFGREN: No, no, no. I'd like to know about the Wall Street, the lack of Wall Street prosecutions.

     HOLDER: All right. Well, I was just dealing with some things that you said (inaudible).

     The fact that we have these prosecutions on the border is not any indication that we're not taking the Wall Street potential offenses seriously.

     We have prosecuted a great many cases that deal with fraud with regard to the mortgage area, with regard to financial schemes.

     A case was brought by (inaudible) the last couple of weeks a $3 billion fraud scheme and that involved Colonial Bank, Mr. Lee Farkas.

     The department is looking right now at the report prepared by Senator Levin's subcommittee that deals with Goldman Sachs.

     The notion -- and people have to disabuse themselves of the notion that, somehow or other, this Department of Justice, the prosecutors who look at these cases, don't want

to bring these cases.

     They come to the Department of Justice to look at matters like this, to apply the law, look at the facts and to bring new cases. We are extremely aggressive in that way.

     LOFGREN: May I ask how many investors and U.S. attorneys are assigned to the prosecution of executives on Wall Street who may have committed misconduct?

     HOLDER: I can't give you an exact number, but I can tell you that a substantial number of people in the Southern District of New York, as well as the criminal division here

in Washington, numerous...

     LOFGREN: Well, maybe you can get that number after the -- this hearing.

     I'd like to turn to the whole mortgage industry. There was tremendous misconduct undertaken relative to the mortgage industries, including fraud.

     And as you are aware, I am sure, all 50 attorney generals (sic) have engaged in settlement discussions with banks about their misconduct.

     Recently, the Comptroller of the Currency released a draft cease- and-desist order, which one expert described as the regulatory equivalent of a Potemkin village.

     I'm wondering if you could tell us -- I understand the department is also engaged in the negotiations -- what should the top priorities for a global settlement of legal claims

against serving -- servicing industry include?

     Do you concur with the attorney generals' (sic) outlined settlement? Or do you have a different approach?


HOLDER: Well, I'm not sure you can look at -- you can say that the attorneys general -- attorney generals (sic) are a model if they have a variety of approaches.

     Tom Perrelli, who is the associate attorney general, is intimately involved in that process.

     And we're trying to work with the financial institutions as well as the state attorneys general to try to work our way through an appropriate settlement.

     LOFGREN: Well, they have a framework. And I'm just wondering if you agree with that framework or not.

     HOLDER: Well, I -- yes, there's a framework. There is a framework. But there are still a whole bunch of different views, believe me. There's a stated framework.

     But in terms of the interaction that goes on in these negotiations, there are a variety of positions that we are trying to harmonize and trying to work with the financial

institutions to reach a conclusion...

     LOFGREN: But if I could ask unanimous consent for 30 seconds, Mr. Chairman, it -- could you tell us if the – if the...

     SMITH: The gentlewoman is recognized for an additional 30 seconds.

     LOFGREN: ... if the settlement discussions fail, are you prepared to prosecute these institutions, since that is the basis for the settlement discussions?

     HOLDER: If there -- if the negotiations fail, if there is a basis for prosecutions, we will bring them.

     LOFGREN: Thank you, Mr. Chairman.

MARINO: Thank you.

     Now I want to switch gears here to Countrywide Financial, particularly Angelo Mozilo, the former chair and CEO of Countrywide Financial. And the SEC filed charges against him and others on June 4th of 2009 alleging that they failed to disclose to investigators the significant credit risk that Countrywide was taking on as a result of its efforts to build and maintain market shares.

     The SEC's complaint further alleged that Mozilo engaged in insider trading while he was aware of material nonpublic information concerning Countrywide's increasing credit risk

and the risk regarding the poor expected performance of Countrywide originated loans.

     This gentleman received or made from 2001 to 2006 $470 million in salaries and stock options and things of that nature.

     In the federal prosecutor in Los Angeles dropped these criminal investigations on this man in February 2011. He was assessed civil penalties to the tune of almost $68 million.

     And I don't know all the facts. I haven't read any indictments or anything -- or potential investigative reports, only what I read in the newspaper and catch from

other individuals.

     But I understand this person is still enjoying his yacht out in the Mediterranean and based on the limited material that I read I think there's a question there. I think there's a serious question that at least could have been brought before a grand jury to determine whether to indict. I can see why he probably would want to hand over $68 million if he made $470 million and not spending any jail time on that.

     If you are familiar with that, could you elaborate on it a little bit? And if not, could you have someone look into that, please?

     HOLDER: Well, I'm not sure there's an awful lot of information we'd be able to share. I'm not intimately familiar with the case, but again (inaudible) sure we'd be able to share information on a closed matter. As you are a member from your DOJ days, that is not something that is typically done.

     What we try to do, obviously, is to look at these matters, be aggressive. You know, we have good lawyers, again, as you know, around the country. We look at these

matters and try to make cases.

     And that's something that I hope I've conveyed today, that these matters are examined by prosecutors who come to the Justice Department to try these matters, investigate

these matters and to take these matters to court and then to hold people responsible.

     If the determinations are made not to proceed, it's not for lack of trying. It's because they have made a determination that they can't.

     MARINO: You've made it very clear today, I applaud you for those efforts. My office was involved in prosecuting a case similar to this, and I never would question a U.S.

attorney as to why they did or didn't. I'm sure there are reasons.

     But this is the kind of situation where my constituents say, how can someone this wealthy get away with that? And you know how they're couching it, in terms of wealth and get away with it. I know that's not case with the Justice Department.

     Thank you so much for being here today. And I yield my time.

     HOLDER: Thank you.

     SMITH: Thank you, Mr. Marino.

h/t MM