Goldman files subpoenaed by prosecutor
GOLDMAN Sachs yesterday admitted that it has been subpoenaed by the Manhattan district attorney as part of a US probe into wrongdoing during the financial crisis.
The news caused its shares to plunge 3.4 per cent initially, with its peers Morgan Stanley and JP Morgan Chase dropping 1.9 per cent and 2.6 per cent respectively as markets fretted that the inquiry could draw in other Wall Street giants.
The stock prices recovered in later trading, but the price movement showed investors’ sensitivity to any potential case, which is in the early stages of investigation.
The Department of Justice and Manhattan district attorney Cyrus Vance Jr are compiling evidence after being handed a 600-page report put together by a Senate committee that accused Goldman of misleading its clients and Congress and called Wall Street a “financial snake pit” during the crisis.
Goldman will now have to hand over information relating to the accusations, which centre on whether it persuaded clients to buy mortgage-backed securities in 2007 and 2008 while also maintaining a short position in the instruments.
A spokeswoman for the bank, which denies any wrongdoing, said: “We don’t comment on specific regulatory or legal issues, but subpoenas are a normal part of the information request process and, of course, when we receive them we cooperate fully.”
Meanwhile, Moody’s put Bank of America, Wells Fargo and Citibank on review for a possible credit ratings downgrade because the US government “does not want to bail out even large, systemically important banking groups”.
While Moody’s said that it was unlikely the US would successfully eliminate its credit subsidy to banks entirely, it said that “the support assumptions built into these three banks’ ratings are unusually high”.