Spring is in the air and the wafts of prosecutions that are coming from the Justice Department and the office of Special Inspector General for the Troubled Asset Relief Program (SIGTARP) couldn’t smell any sweeter. From the Washington Post:
The Justice Department has opened a criminal investigation into possible securities fraud in mortgage trading at Goldman Sachs, law enforcement sources said Friday.
The U.S. attorney’s office in Manhattan and the FBI are conducting the probe, which sources said has been underway for weeks. … the investigation has not been publicly disclosed, said no charges — or a decision on whether to file them — are imminent.
…law enforcement sources said the probe by the Manhattan U.S. attorney’s office — which is known for aggressively investigating financial fraud cases — was not based on an SEC referral and was underway before the SEC announced the civil case April 16.
It was not immediately clear if the FBI and prosecutors are probing different mortgage-related transactions than those at issue in the civil case. No Goldman Sachs employees involved in the mortgage-related transactions that are the focus of the SEC case have been interviewed by Justice Department prosecutors or FBI agents, another source familiar with the matter said.
According to the WSJ’s Criminal Probe Looks Into Goldman Trading:
The opening of the Justice Department investigation was first reported Thursday evening by The Wall Street Journal’s Web site.
Goldman has said it will defend itself against the S.E.C.’s accusations. The firm’s executives discussed the case last week during their quarterly earnings call, and this week, they testified about their mortgage operations in a nearly 11-hour hearing in Washington before a Senate subcommittee. …
Many in Congress have been pressing for a criminal inquiry. This week, 62 House members sent a letter to the Justice Department asking it to conduct an investigation into Goldman’s actions.
Another busy bee is Neil Barofsky head of the Office of the Special Inspector General for the Troubled Asset Relief Program tasked with monitoring and rooting out fraud and waste in the management of the $700 billion in TARP funds. In Senate Finance Committee testimony on April 20, Barofsky Says Criminal Charges Possible in Alleged AIG Coverup.
The secrecy that enveloped the deal was unwarranted, Barofsky says, adding that his probe of an alleged New York Fed coverup in the AIG case could result in criminal or civil charges.
In Senate Finance Committee testimony on April 20, Barofsky said SIGTARP would investigate seven AIG-linked mortgage-related securities similar to Abacus 2007-AC1, the instrument underwritten by Goldman Sachs Group Inc. that is at the center of a U.S. Securities and Exchange Commission lawsuit filed against the investment bank on April 16.
“I’ve been in contact with the SEC,” he told the committee. “We’re going to coordinate with them, but we’re going to lead the charge. We’re going to review these transactions.”
TARP watchdog Barofsky understands America frustration with the lack of transparency in our government.
“There’s a reason there are Tea Partiers out there, and when you look at it, anger at the bailout is one of the first things they talk about,” says Barofsky, referring to the anti- Obama political movement. “This Treasury Department and the previous Treasury Department bear some of the responsibility for not being straightforward with the American people.”
At the heart of SIGTARP’s investigation is the fact that:
… For more than a year, the New York Fed kept key aspects of the AIG bailout secret, including details of its own involvement and its decision to have AIG pay the insurer’s bank counterparties 100 cents on the dollar on the credit protection they’d bought against about $62 billion in CDOs.
In a November report, SIGTARP criticized Geithner’s failed efforts to obtain discounts from the banks.
After the banks had been paid in late 2008, a lawyer from the New York Fed sought to have AIG keep the banks’ identities under wraps, as well as data about the CDOs that would have revealed which firms had underwritten the toxic bonds and which ones had managed them…
Barofsky says the question of whether the New York Fed engaged in a coverup will result in some sort of action.
“We’re either going to have criminal or civil charges against individuals or we’re going to have a report,” Barofsky says. “This is too important for us not to share our findings.”
He won’t say whether the investigation is targeting Geithner personally.
Time will tell how this will all play out but it is truly heartening to know that SIGTARP head, Neil Barofsky is willing to cross swords with Treasury Secretary Timothy Geithner. Particularly over the Federal Reserve Bank of New York’s handling of AGI’s bailout back in 2008 under none other than Mr. Geithner.
We could have an interesting lead up to the 2010 elections.
[Cross posted at No Quarter]