Goldman’s Legal Woes Keep Growing


Goldman Sachs disclosed that it has been notified that the Commodity Futures Trading Commission’s staff will recommend that the agency bring “aiding and abetting, civil fraud and supervision-related charges” against its division, Goldman Sachs Execution & Clearing, according to a Wall Street Journal article by Liz Moyer entitled “Goldman Discloses CFTC Probe.” The charges reportedly have to do with its role as a clearing broker for an unnamed registered broker-dealer.

Goldman knew, or should have known, that its broker-dealer client’s subaccounts at Goldman were accounts belonging to customers of the broker-dealer and not the broker-dealer’s own accounts, according to the article, citing the CFTC filing.

Former Goldman partner Gary Gensler is chairman of the CFTC. The CFTC action is viewed as a post-crisis crack down, as the CFTC had previously been reluctant to bring enforcement actions against large Wall Street banks, focusing instead on smaller firms that handled retail accounts, according to the article.

Former CFTC chairman Brooksley Born observed that the CFTC’s enforcement abilities had been “substantially weakened” in the years leading up to the financial crisis, but that “[t]he great recession was a wake up call” on regulators to act.

Goldman paid $726 million in legal fees last year, of which $434 million went to outside law firms dealing with investigations on several fronts, according to the article.

On another front, a Senate Report recently revealed that Goldman created at least four offshore CDOs with total value of $4.5 billion that were rife with conflicts of interest. Goldman paid the SEC $550 million ? the largest fine ever ? to settle a civil fraud suit on one of them.

A Senate investigative committee has also made a referral to the Justice Department and the SEC of its findings about Goldman’s underwriting activities before and during the financial crisis, according to the article.

In addition, the Justice Department is reportedly reviewing investigating possible anticompetitive practices at Goldman.

Finally, Goldman Sachs has disclosed that it reached a settlement in principle in the Washington Mutual securities litigation, which involved allegations that offering documents in connection with Washington Mutual security offerings “failed to describe accurately the company’s exposure to mortgage-related activities in violation of the disclosure requirements of federal securities laws.” Goldman underwrote approximately $520 million of securities in the offerings.

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