The SEC, which opened up a civil fraud suit against Goldman Sachs a couple of weeks ago, has handed the matter over to federal prosecutors, turning the civil suit into federal criminal investigation.
Federal prosecutors would face a higher bar in bringing a criminal case against Goldman, whose role in the mortgage market came under sharp scrutiny this week during a marathon hearing in the Senate. In contrast to civil cases, the burden of proof is higher in criminal ones, where prosecutors must prove their case beyond a reasonable doubt.
The stakes are high for Goldman, but they are also high for the United States attorney’s office. Prosecutors from the Eastern District of New York lost a case last year filed against two hedge fund managers at Bear Stearns, whose collapse presaged the turmoil on Wall Street.Prosecutors built much of that case around internal e-mail messages at Bear Stearns, much the way the S.E.C. and senators have pointed to e-mail at Goldman in which employees had disparaged investments that they were selling to their customers.
In the end, however, prosecutors were unable to prove to a jury any criminal wrongdoing by the Bear Stearns employees. ...NYT
There's a real possibility that this is largely a dog and pony show. The government needs a political boost from being "hard" on Wall Street; the government needs Wall Street.
Either way, the mere existence of federal prosecution hanging over the heads at Goldman Sachs could hurt the company.
It is rare for the government to indict a company, and even the threat of criminal prosecution can doom a business. A criminal investigation destroyed the Wall Street firm Drexel Burnham Lambert in the 1980s even though the firm settled with authorities. And although the Supreme Court ultimately overturned the conviction, accounting firm Arthur Andersen collapsed after facing criminal charges in connection with corporate corruption at Enron in 2002. ...WaPo
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