U.S. won’t prosecute Goldman Sachs, employees over CDO deals

Aug. 10 (Bloomberg) -- The U.S. Justice Department won’t pursue criminal charges against Goldman Sachs Group Inc. or its employees for allegedly concealing that the bank bet against mortgage-related securities that it sold to investors.

The Justice Department, along with the U.S. attorney’s office for the Southern District of New York, reviewed the possibility of prosecution after the Goldman Sachs deals were faulted in a Senate investigative panel’s report last year.

Prosecutors “determined that, based on the law and evidence as they exist at this time, there is not a viable basis to bring a criminal prosecution with respect to Goldman Sachs or its employees in regard to the allegations set forth in the report,” the Justice Department said yesterday in a statement.

The Senate’s Permanent Subcommittee on Investigations concluded in April 2011 that Goldman Sachs had peddled the securities to its clients while failing to disclose that the firm had bet that those instruments would lose value. The investigation pinned much of the blame for the credit crisis on Wall Street banks that earned billions of dollars by enticing clients to buy the risky bonds.

Senators Carl Levin of Michigan and Tom Coburn of Oklahoma, the panel’s Democratic chairman and senior Republican, referred the report to the Justice Department to see whether criminal charges were merited.

“We are pleased that this matter is behind us,” David Wells, a spokesman for the New York-based bank, said in a statement yesterday.

Blankfein Testimony

The financial-crisis inquiry was the subcommittee’s longest probe under Levin, lasting two years by the time the panel completed its work. The staff amassed 56 million pages of memos, documents, prospectuses and e-mails, Levin said last year.

As part of the investigation, Levin brought seven current and former Goldman Sachs executives, including Chief Executive Officer Lloyd Blankfein and Chief Operating Officer Gary D. Cohn, before the panel for questioning about their actions before the 2008 financial crisis.

Blankfein said in his testimony that the firm never bet against its clients for its own profit.

When the panel’s 640-page report was released, Levin said he wanted the Justice Department and the Securities and Exchange Commission to examine whether Goldman Sachs broke the law by misleading clients who bought the complex securities, known as collateralized debt obligations, without knowing the firm would benefit if they fell in value.

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