Reply #5: Along with SEC, other investigators and suits may target Goldman Sachs [View All]

NEW YORK -- As investigators in Massachusetts considered charging Wall Street firms for their role in the financial collapse, they focused on Goldman Sachs because it had bundled and sold the shoddiest of subprime mortgage loans, setting up the housing market for a greater fall by continuing to sell shaky securities even as other banks withdrew.

After discussions with the office of state Attorney General Martha Coakley (D), Goldman last year agreed to pay up to $60 million to end that investigation, the first major settlement involving Wall Street's role in the subprime mortgage crisis.

"Goldman was particularly active with respect to facilitating the lending by two of the more notorious and unsound subprime lenders -- Fremont and New Century," Coakley said Wednesday. "Goldman was especially active with these companies in the latter stages of the subprime lending boom . . . when it should have been increasingly clear to any responsible person that the subprime loan pools underlying securitizations suffered serious problems."

Even before the Securities and Exchange Commission sued Goldman last week, accusing it of creating a complex financial product designed to fail and selling it to unknowing investors, the firm had become a frequent target of investigators. In courts and in Congress, Goldman has been accused of a range of misdeeds, including manipulating oil prices and using taxpayer money for handsome bonuses. ...

In Washington, pressure is also growing. Reps. Elijah E. Cummings (D-Md.) and Peter A. DeFazio (D-Ore.) urged the SEC this week to widen its investigation to include securities underwritten by Goldman and backed by American International Group, the insurer that received a massive federal bailout. "Should any of these transactions be found to include fraudulent conduct, any resulting contractual payments from AIG-issued credit-default swaps could be viewed as ill-gotten gains," the lawmakers wrote in a letter to SEC Chairman Mary Schapiro.

http://www.washingtonpost.com/wp-dyn/content/article/2010/04/21/AR2010042105394.html

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From the tone of the process, it looks like this civil case could quickly evolve into a criminal one.