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September 23, 2017

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Goldman Sachs escapes US prosecution over mortgages

WASHINGTON--Goldman Sachs escaped prosecution over its sales of high-risk mortgage securities Friday when the U.S. Justice Department closed a probe without action despite a damning report on the bank's practices.

Following a two-year inquiry, senators concluded in April 2011 that the Wall Street investment banking giant misled clients ahead of the U.S. financial crash by offloading securities its traders fully expected to lose value.

Releasing the report last year, investigative panel chief Senator Carl Levin recommended that charges be brought and said Goldman had "clearly misled" their clients and Congress.

But the Justice Department said there was "not a viable basis" for a criminal prosecution against Goldman or its employees.

An agency statement said its investigators had closely scrutinized the Senate's evidence and conducted inquiries and witness interviews of its own, concluding it could not prove wrongdoing.

Apparently anticipating criticism for letting one of the banks seen as deeply at fault in the 2008 crisis off the hook, the Justice Department insisted it has fiercely pursued other cases against financial giants.

The Senate report concluded Goldman and other banks had sold clients collateralized debt obligations — investments based on bundles of often risky home loans — despite believing they were likely to lose value.

The crash of 2008 wiped billions of dollars off the value of the widely-held CDOs, and savaged the balance sheets of investors in them, especially banks overexposed to the complex financial instruments.

The failure of the multi-trillion-dollar CDO market was a key factor in the financial and housing market crash that sent the U.S. economy into recession over 2008 and 2009.

The Senate report came after Goldman agreed to pay the Securities and Exchange Commission $550 million in July 2010 to settle accusations of wrongdoing in the CDO business, while not admitting and wrongdoing.

Reacting to the Justice Department move, a Goldman spokesman said only: "We're pleased to have this matter behind us."

But Levin, while not criticizing the decision, reiterated his anger over the investment bank's actions and called for tougher bank regulation.

"Whether the decision by the Department of Justice is the product of weak laws or weak enforcement, Goldman Sachs's actions were deceptive and immoral," he said.

The decision had no impact on Goldman shares, which were down 0.6 percent to US$103.02 at the market close Friday.

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