WASHINGTON – After a two-year bipartisan probe, a Senate panel has concluded that Goldman Sachs Group Inc. profited from the financial crisis by betting billions against the subprime mortgage market, then deceived investors and Congress about the firm’s conduct.
Some of the findings in the report by the Senate’s Permanent Subcommittee on Investigations will be referred to the Justice Department and the Securities and Exchange Commission for possible criminal or civil action, said Sen. Carl Levin, D-Mich., the panel’s chairman.
“In my judgment, Goldman clearly misled their clients and they misled the Congress,” Levin told reporters before the report was made public late Wednesday.
Goldman said it disagreed with many of the subcommittee’s conclusions and denied its executives misled Congress. The firm agreed last year to pay $550 million to settle a civil fraud case brought by the SEC regarding its actions in the market for mortgage securities. The latest allegations go beyond the conduct covered by the SEC suit.
The giant investment bank was just one focus of the subcommittee’s probe into Wall Street’s role in the financial crisis. The 639-page report casts broad blame, saying the crisis was caused by “conflicts of interest, heedless risk-taking and failures of federal oversight.”
“It shows without a doubt the lack of ethics in some of our financial institutions,” said Sen. Tom Coburn, R-Okla., the subcommittee’s top Republican, who approved the report along with Levin.
Among the culprits cited by the panel are Washington Mutual, a major mortgage lender that failed in 2008; credit rating firms Moody’s and Standard & Poor’s; and the Office of Thrift Supervision, a federal bank regulator. The report makes 19 recommendations about how to prevent a future crisis, many of which were adopted in last year’s overhaul of financial rules. The subcommittee’s conclusions about the cause of the crisis are similar to those of the Financial Crisis Inquiry Commission created by Congress. But that body’s findings were marred by an inability to reach bipartisan consensus.
Much of the report centers on Goldman, whose executives were called before the committee last year for an intensive grilling.
Levin was one of the chief inquisitors at that hearing and has been outspoken about Goldman’s role in the crisis.
“Goldman was, I think, the only major bank that did well during the recession. We tried to find out, ‘How is it they did well?’ ” Levin said Wednesday. “The tactics that they used … were disgraceful. And sticking it to their own clients violates their own claim that the clients come first.”
Asked about the fact that no Wall Street figures had gone to jail in connection with the crisis, Levin responded, “There’s still time.”
One of the report’s main allegations against Goldman was that it deceived clients who bought its mortgage-related securities, failing to tell those investors the firm was betting against those investments at the same time.
The SEC suit that Goldman settled last year alleged that the firm had misled investors in a complex mortgage-related security known as Abacus. The Senate report cites three similar securities that it said Goldman betted against, or shorted, without informing its clients.
The subcommittee has estimated that in 2007 Goldman’s bets against the mortgage markets more than balanced out the bank’s mortgage losses and led to a $1.2 billion profit in the mortgage department alone that year.