Bloomberg News

Goldman Says SEC Closed Probe of Firm After Threatening Case

August 09, 2012

Goldman Says SEC Closes Probe Without Action After Wells Notice

Pedestrians pass in front of 200 West Street, which houses the headquarters of Goldman Sachs Group Inc., in New York. Photographer: Scott Eells/Bloomberg

Goldman Sachs Group Inc. (GS:US) said U.S. regulators ended an investigation of its role in selling $1.3 billion of mortgage-backed securities and won’t sue the firm, reversing course after investigators warned in February that they intended to recommend legal action.

Securities and Exchange Commission lawyers told Goldman Sachs on Aug. 6 that they no longer planned to pursue claims against the bank, the New York-based company said today in a regulatory filing (GS:US). The regulator had sent Goldman Sachs a so- called Wells notice in February, which typically gives recipients a chance to dissuade investigators from recommending the agency authorize enforcement action.

The SEC’s investigation looked at disclosures during the late-2006 offering of subprime residential mortgage-backed securities underwritten by Goldman Sachs, according to the firm’s filing. It didn’t elaborate on the SEC’s decisions. David Wells, a spokesman for the firm, declined to comment.

A separate SEC lawsuit in April of 2010, accusing Goldman Sachs of misleading investors in the sale of securities that bet on subprime mortgages, caused the firm’s stock to plunge 13 percent on the day it was filed and roiled the broader market. The investment bank paid $550 million to settle the case in July that year, saying it had made a “mistake” in omitting disclosures.

Shares Rise

Goldman Sachs, the fifth-largest U.S. bank by assets, advanced 1.4 percent to $103.94 as of 10:34 a.m. in New York, making it the second-best-performing bank in the Standard and Poor’s 500 Financials Index of 81 companies including lenders, brokerages and insurers. The shares have climbed 15 percent this year.

Four years after mounting mortgage defaults prompted unprecedented government bailouts of the financial system, regulators are still examining how banks packaged and sold home loans to investors. The SEC is looking for evidence that firms failed to disclose underlying credit weaknesses in mortgage pools and delinquencies, Jason Anthony, special counsel for the agency’s structured-products unit, said in February.

JPMorgan Chase & Co., the largest U.S. bank, was warned by SEC employees in January that they may recommend civil claims from two inquiries, including one focusing on due diligence and disclosures for two mortgage-backed securitizations.

The New York-based bank said today in a filing that it has submitted responses to the agency’s proposed actions.

To contact the reporter on this story: David Scheer in New York at dscheer@bloomberg.net

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net


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Companies Mentioned

  • GS
    (Goldman Sachs Group Inc/The)
    • $180.18 USD
    • 2.34
    • 1.3%
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