Goldman Sachs won’t face U.S. charges for mortgage securities

WASHINGTON — The Justice Department said it would not pursue criminal charges against Goldman Sachs Group Inc. or its employees related to allegations by a Senate panel that the bank deceived investors and Congress about its activities in the subprime mortgage market.

After an “exhaustive review” that began last year, investigators “concluded that the burden of proof to bring a criminal case could not be met based on the law and facts as they exist at this time,” the Justice Department said in a statement released Thursday night.

The officials said they could change their minds “if any additional or new evidence emerges.”

The investigation by officials from the Justice Department’s Criminal Division, the U.S. attorney’s office for the southern district of New York, the FBI and other agencies began after a scathing report regarding Goldman was issued in April 2011 by the Senate’s Permanent Subcommittee on Investigations.

The panel, which conducted a bipartisan, two-year probe into the origins of the financial crisis, concluded that Goldman was a major culprit.

The subcommittee’s report, based on internal memos, emails and interviews with employees of financial firms and regulators, said Goldman profited from the crisis by betting billions of dollars against the mortgage market and then misled the bank’s clients and lawmakers about its activities.

The committee’s investigation included a high-profile hearing in which senators grilled Goldman Chief Executive Lloyd Blankfein. He testified that the bank had not consistently tilted its own investments heavily against the housing market, also known as having a “net short” position, as it was selling mortgage-related securities to its clients.

The subcommittee’s report said Goldman’s own financial records and internal communications directly contradicted Blankfein’s denial.

Goldman had strongly challenged the subcommittee’s findings, saying the company had acknowledged being intermittently net short but never had a “massive net short position.”

On Friday a company spokesman said, “We are pleased that this matter is behind us.”

But Sen. Carl Levin (D-Mich.), the subcommittee’s chairman, said he stood by his panel’s findings.

“Whether the decision by the Department of Justice is the product of weak laws or weak enforcement, Goldman Sachs’ actions were deceptive and immoral,” Levin said.

The lack of prosecution by federal officials highlighted the need to prevent banks from convincing regulators and Congress to water down new rules in the 2010 financial reform law designed to prevent another crisis, Levin said.

The Justice announcement came after Goldman reported in a regulatory filing Thursday that the Securities and Exchange Commission had decided not to file charges against the firm over a $1.3-billion subprime mortgage portfolio. The SEC was investigating Goldman’s disclosures about the portfolio, which was offered to investors in 2006.

In 2010, Goldman agreed to pay pay $550 million to settle SEC allegations that the bank misled investors who bought some mortgage-related securities.

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