The regulators Goldman Sachs NYSE:GS witch hunt is spooking investors. Goldman shares fell sharply in the final minutes of regular trading after Reuters reporting the hiring, finishing down 4.7 percent at $106.51, their lowest level since March 2009.
They slipped further in after-hours trade to $105.45. Should a large scale prosecution or arrest be made the US market faces a real crisis.
Whilst it has been a bumpy economic year in the USA it is our opinion the economy has recovered well from the 2008 disasters despite poor administration and wasteful spending in the White House.
However, Obama’s latest attack on Goldman Sachs and the ongoing disaster of Dodd-Frank could combine to create a real recession. Should Goldman stumble we would see a run on USA financial institutions that may trigger a global slowdown.
Overzealous regulators desperate to make a name for themselves have swarmed around Goldman Sachs and Blankfein in the aftermath of the credit crisis in which Goldman was accused of favoring some clients over others, and of sometimes trading against the interest of clients.
The U.S. Securities and Exchange Commission managed to extort a $550 million settlement against the bank in a fraud lawsuit in July 2010, but other politically driven investigations continue.
In June, a ridiculous and now disgraced New York prosecutors office subpoenaed the bank to explain its actions in the run-up to the financial crisis. In addition to the Justice Department, the New York Attorney General and the Securities and Exchange Commission are also investigating.
The Senate’s Permanent Subcommittee on Investigations (PSI) in April released a scathing report that criticized Goldman for “exploiting” clients by unloading subprime loan exposure onto unsuspecting clients in 2006 and 2007, and concluded that its top executives misled Congress during testimony in 2010.
Goldman has said it disagreed with many of the report’s conclusions, but took seriously the issues addressed. The Justice Department launched its investigation in late April.
It was not immediately clear what charges, if any, Blankfein could face personally.
One former federal prosecutor, who was not authorized to speak publicly, said Blankfein may have hired outside counsel after receiving a request from investigators for documents or other information.
The Senate report raised questions about inconsistencies between testimony from Blankfein and other Goldman executives to Congress and emails unearthed in the Senate investigation. The subcommittee’s chairman, Senator Carl Levin, has said the question of whether Blankfein and others committed perjury is up to the relevant federal agencies.
The former prosecutor cautioned that perjury cases were difficult to prove, adding that prosecutors would not bring charges unless they had a “rock solid case.”
Goldman earlier in August lowered its estimate for future legal costs to $2 billion from its $2.7 billion estimate three months earlier. It said it expects such costs to remain high for the foreseeable future.
Shayne Heffernan
Shayne Heffernan oversees the management of funds for institutions and high net worth individuals