Goldman came under fire at the weekend after it emerged the bank had known about the investigation months before fraud charges were officially filed by the SEC last Friday.
The bank last year received a so-called “Wells notice” from the regulator, alerting it to the likelihood of the government filing an action against it, but chose not to inform the stock market. It responded with a defence submission in September.
Lawyers yesterday said Goldman was under no obligation to inform its investors of the investigation and that to do so may have damaged its case.
“The bank would have reviewed all its procedures and would have been satisfied it was all above board,” one corporate crime lawyer told City A.M. “To make a disclosure could have sent the message that Goldman believed there was truth to the claims.”
Under US law, a firm is obliged to make disclosures relating to risks perceived as real rather than superficial.
Goldman is accused of having misled investors over the risk of investing in a synthetic collateralised debt obligation (CDO) linked to residential mortgage-backed securities just prior to the sub-prime collapse. It strenuously denies the SEC’s charge that it had an obligation to inform investors that hedge fund Paulson would aggressively short the CDO portfolio – a move that netted Paulson close to $1bn (£0.65bn) in profits.
Goldman faces a renewed onslaught this morning as it prepares to announce a bumper first quarter profit haul of almost $4bn.
US DISTRICT JUDGE
THE SECURITIES and Exchange Commission’s high-profile fraud case against Goldman Sachs has been assigned to one of the most prominent of the US District judges, Barbara Jones.
Jones first gained widespread notoriety for having presided over the $3.8bn (£2.5bn) fraud case of ex-WorldCom chief executive Bernard Ebbers in 2005, who was sentenced to 25 years in prison for his role in what was, until Bernie Madoff came along, the largest fraud in US history.
The trial – at which Ebbers was ultimately convicted on counts of conspiracy, securities fraud and filing false reports with regulators, sending the telecoms company into bankruptcy protection – lasted just eight weeks.
She is renowned for her ruthless efficiency and sense of humour, having previously overseen a number of mobster cases in the Southern District of New York as an assistant US attorney back in the 1970s and 1980s.
According to close friend Sara Moss, the general counsel for upmarket cosmetics group Estee Lauder who once worked alongside Jones as an assistant attorney, she enjoys playing games of cards and tennis in her spare time.
Moss told the Wall Street Journal: “Temperamentally she’s well suited to this… In terms of her background she doesn’t bring any bias to the case. She’s smart and even-tempered.”