No Charges Against Goldman Sachs

After two-and-a-half years and who knows how many taxpayer dollars spent trying to prove criminal wrongdoing, the SEC fell short.

A long investigation into possible fraud by Goldman Sachs has ended with insufficient evidence for criminal charges.

WSJ (“U.S. Won’t Pursue Goldman Charges“):

After a year-long investigation, the Justice Department said Thursday that it will not bring charges against Goldman Sachs Group Inc. or any of its employees for financial fraud related to the mortgage crisis.

In a statement released Thursday, the Justice Department said “the burden of proof” couldn’t be met to prosecute Goldman criminally based on claims made in an extensive report prepared by a U.S. Senate panel that investigated the financial crisis.

“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 statement read.

The Justice Department reserved the right to bring charges in the future if new evidence emerges.

So, what is it that Goldman is supposed to have done? Recall this rather damning Christian Science Monitor report from April 2010:

A Senate investigative panel Saturday released e-mails showing that Goldman Sachs executives discussed profiting from the subprime mortgage crisis in 2007.

“Sounds like we will make some serious money,” one manager e-mailed. “Yes we are well positioned,” his colleague responded, referring to the fact that the investment firm had bet against the mortgage market.

Such revelations are red meat to those on Capitol Hill pushing financial reform.

“Investment banks such as Goldman Sachs were not simply market-makers, they were self-interested promoters of risky and complicated financial schemes that helped trigger the crisis,” said Senator Carl Levin, chairman of the Senate Permanent Subcommittee on Investigations, in a statement.

“They bundled toxic mortgages into complex financial instruments, got the credit rating agencies to label them as AAA securities, and sold them to investors, magnifying and spreading risk throughout the financial system, and all too often betting against the instruments they sold and profiting at the expense of their clients,” said Sen. Levin.

A CNN Money report from the same day, though, showed the complexity of proving criminal conduct:

But the firm said that all of the documents turned over to the panel reveal a different picture — that the firm lost $1.2 billion in residential mortgage-backed securities in 2007 and 2008.

“Of course we didn’t dodge the mortgage mess,” Goldman CEO Lloyd Blankfein told company executives in an e-mail dated Nov. 18, 2007 that was released by both the committee and Goldman. “We lost money, then made more than we lost because of shorts,” or trading bets aimed at profiting when a bond drops in value.

But Blankfein added: “Also, it’s not over, so who knows how it will turn out ultimately.”

As a layman, it certainly looked to me like Goldman intentionally sold a bad asset to unwitting customers so that the firm was covered either way. That’s prima facie unethical. But it’s not necessarily illegal—and damned hard to prove, in any case.  In my contemporaneous write-up (“Goldman Sachs Fraud Case“) I closed with the following caution:

Everyone’s behavior looks worse in the charging document than in reality, as it’s designed to state the absolute strongest case against the accused and omits every shred of exculpatory evidence.

The press reports we were treated to were, essentially, the handful of Goldman emails that looked the most damning, combined with statements from prosecutors and Senators out to poison the well against the firm. After two-and-a-half years and who knows how many taxpayer dollars spent trying to prove criminal wrongdoing, though, they fell short.

FILED UNDER: Economics and Business, Law and the Courts, , , , , , ,
James Joyner
About James Joyner
James Joyner is Professor and Department Head of Security Studies at Marine Corps University's Command and Staff College. He's a former Army officer and Desert Storm veteran. Views expressed here are his own. Follow James on Twitter @DrJJoyner.


  1. Ben Wolf says:

    The whole point of laws against fraud is that they cover this very sort of behavior. Hard to prove? Regulators during the S & L crisis obtained hundreds of convictions of top executives despite fraud being hard to prove. They did it because George H. W. Bush ordered them to bring him scalps as a lesson to others in the industry. President Obama, not so much.

  2. Moderate Mom says:

    Given that Obama is in full defcon campaign mode and pandering to every part of his base in an effort to drive up turnout, who doubts that if there was any chance a case could be proved against Goldman the Justice Department would have filed charges? Perp walking Goldman execs would have been fantasy fulfillment for the liberal base.

    Let the outrage begin!

  3. So you’re telling me that huge number of senior government officials with financial ties to Goldman Sachs failed to find anything wrong? Hang on, let me go get my suprised face out of the closet.

  4. Ron Beasley says:

    This is no surprise and why I opposed Eric Holder’s appointment as AG. These people are his friends and neighbors. Goldman Sachs and the other big banks own DC. This is text book Mussolini fascism. Eric Holder should be impeached not for gun running but for this.

  5. Modulo Myself says:

    Utterly unsurprising. Going after Goldman Sachs is not like the 80s, where a few bad apples at nowhere S&Ls or outsiders like Boesky or Milken were caught. Once you started with fraud charges against a bunch of traders, where would you stop? There aren’t bad apples at Goldman Sachs. There are just people who follow orders and behave as they’re supposed to behave.

    This is not to sound like a travel in high circles. I do not. Many of the people I know, excluding myself, come from a background where it would not be unusual to have a father or another relative or a childhood friend’s father who was a corp lawyer who dealt with banks or a VP at Goldman Sachs or something equitable involved in real estate or finance. These are all very liberal people. They love income redistribution, welfare, Obamacare, and all around socialism. And not that many are chasing money in their lives.

    But I’m not sure how many would be willing to pull the trigger, say F— it, and go after these institutions. They’d be happy with scapegoats, I”m sure, but nothing more.

  6. Franklin says:

    It’s disappointing that they couldn’t prove anything, but I fully support spending money chasing these a-holes around if there’s any chance at all that we can catch them.

  7. Jenos Idanian #13 says:

    Nor will there be any charges against MF Global, despite Jon Corzine breaking the very laws he helped co-sponsor. Because Corzine knows all the right (or, rather, left) people. He has too many ties to the Obama administration to have to worry about being held accountable.

  8. 11B40 says:


    And somewhere in the depths of New Jersey, which are really, really deep, a smile begins its sickening crawl across Jon Corzine’s face.

  9. Tsar Nicholas says:

    There’s a major difference between civil fraud and criminal fraud. Hell, fraud in general is easy to plead but hard to prove, as the saying goes, but to prove criminal fraud in connection with securities is quite the tall order. Besides, it’s not GS’s fault that other institutional investors were so dumb as to allow themselves to be duped by collateralized instruments that were based upon 100% or even plus-100% mortgage financing given to people who didn’t have to prove they were employed much less than they had steady incomes.

    That aside, obviously the chances of Obama’s SEC going after GS criminally fell somewhere between slim to none, pretty much regardless of the evidence. GS is a huge donor to Democrats, in general, and to Obama, in particular, and ever since the days of Tammany Hall Democrats look after their sugar daddies.

    Lastly, perhaps the larger issue here is that the SEC is yet another bloated, inefficient and inept federal agency that needs to be tamped down to size. Federal taxpayers for decades have been throwing money at the SEC with little to nothing in return. It’s time that changed.

  10. Ron Beasley says:

    @Jenos Idanian #13: For once once we are in complete agreement.

  11. michael reynolds says:

    Do you mean to tell me that the former Goldman Sachs executives and the future Goldman Sachs executives at the SEC couldn’t come up with any charges against Godman Sachs? That’s hard to believe.

  12. Jenos Idanian #13 says:

    @Ron Beasley: My hunch is, where we disagree is that you probably see this as an aberration, but I see it as entirely typical and of a pattern and perfectly reflective of Obama’s political character.

    However, in acknowledgement of your gracious statement, I’ll refrain from elaborating on that argument and possibly derailing the discussion, and simply offer to “agree to disagree.”

    Corzine, though… he’s ALWAYS shown that he doesn’t believe himself subject to the same rules and laws he imposes on others. He co-sponsored the law that makes CEOs sign off as personally liable for their company’s financial doings, then signed off on the fraudulent forms for MF Global that concealed their illegal commingling of funds and other financial crimes that eventually took them down. But I’m putting the odds of Corzine being charged for breaking “his” law as about equal with… oh, Obama dumping Biden from the ticket and replacing him with John Edwards.

  13. bill says:

    shocker, when’s the last time anyone saw a headline like “justice dept. outsmarts (insert any huge wall st player)” or “irs outsmarts (insert any major company here)” . the best and brightest don’t work in the gov’t or run for office- well maybe a minority, but they’re overwhelmed.

  14. Bennett says:

    @Jenos Idanian #13: I don’t think anyone sees this as an aberration. I think anyone with half a brain knows that people with lots of money get away with crimes all the time. Has been so for centuries and will continue to be so until we acknowledge that great wealth does make someone a great person.

  15. Bennett says:

    @Bennett: Missed a “not in there”. We need an edit function here guys.

  16. Loviatar says:

    @Jenos Idanian #13:

    You know what you really are an ASS.

    @Ron Beasley: My hunch is, where we disagree is that you probably see this as an aberration, but I see it as entirely typical and of a pattern and perfectly reflective of Obama’s political character.

    Someone from this site besides jan/G.A. and the rest of the Krazy Klown Posse (KKP) actually agreed with you on a subject and all you can do is use it as an opportunity to launch a KKP pie strike that as usual misses the target.

    My God, you’re an ASS.

  17. Jenos Idanian #13 says:

    @Loviatar: No, jackwagon, that was NOT a “pie strike.” Were I inclined to take the opportunity to attack Mr. Beasley over his comment, I would have said something like “Congratulations, grasshopper, you show promise. Now if you can only bring yourself to acknowedge that Corzine is far, far more typical of Obama cronies and co-conspirators, and is only slightly more flagrant than the rest” and then followed up with a long list of other names and examples.

    Instead, I simply stated my position, without pushing it, and made an attempt to understand his perspective as a gesture of amity. Apparently I wasn’t quite clear enough; my intent was to state that I see Corzine as a fairly typical example of Obama’s cronies, not as a representative of rich people or big bankers or big players who bounce back and forth from Big Finance and Big Government. For that, I offer Ron Beasley my apologies. I should have made that clearer.

    My intent was to head off one way I saw the conversation going: I state that this is entirely typical of Obama cronies, being venal and corrupt and contemptible. I get challenged and insulted. I reply by listing a long list of people I consider examples that support my case, and that gets answered with a hefty round of personal attacks that do nothing to advance the conversation. (I’ve been down that road way, way too many times to not see it coming every now and then. Much like your above comment.)

    So, your little “intervention” here? Pointless, misguided, and really, really stupid.

    Back on topic: Considering how many Goldman Sachs people have somehow found their way into the Obama administration, is this in any way surprising to anyone?

  18. Jenos Idanian #13 says:

    @Bennett: There is an edit function; it’s just time-limited. I think you have about 5 minutes or so to “revise and extend.” Here, I’ll check…

  19. Jenos Idanian #13 says:

    Yup, 5 minutes. Once that passes, it’s up to the moderators to change comments.

  20. grumpy realist says:

    @Jenos Idanian #13: I think it may depend on what browser you use, because I’ve never been offered the chance to “revise and extend.”

  21. Jeremy R says:

    That aside, obviously the chances of Obama’s SEC going after GS criminally fell somewhere between slim to none, pretty much regardless of the evidence. GS is a huge donor to Democrats, in general, and to Obama, in particular, and ever since the days of Tammany Hall Democrats look after their sugar daddies.

    This isn’t quite accurate. They gave more to Bush on the ’04 cycle, more to Obama in the ’08 cycle, and they’re currently giving over six times as much to Romney in this cycle. In congress they’ve also given more to the GOP in the ’10 and ’12 cycles.

    Actually, the Right can’t use GE as a boogeyman anymore either — their givings now favor the GOP by a similar margin to their ’08 Democratic donations:

  22. Jeremy R says:
  23. Stonetools says:

    New, tougher fraud legislation is needed, obviously.

  24. C. Clavin says:

    Really? Not even an extra-marital blow-job? Where’s Ken Starr when you need hiim???

  25. steve says:

    Let me second Jeremy. The financial sector as a whole, over the years, has donated predominantly to the GOP. However, this is only by about a 10% margin. When it is clear that a Democrat is going to win the election, they then donate primarily to the Democrats. In this election, they are donating heavily to Romney. I think that their political party is really the Greens, as in dollars.

    Goldman Sachs, and their brethren, have been involved in all administrations. Where did Hank Paulson come from? Of course Goldman will walk. They have always walked. Yes, they pay the occasional $550 million fine, but that is just part of the cost of doing business.


  26. Tony W says:

    Even during the New-Deal era founding of the SEC this captivity of the regulatory agency by its subjects was controversial and hotly debated – like many Democrats after him, eventually FDR caved just to get something done.

    The Republicans of the day lost the battle….but won the war.

  27. jukeboxgrad says:

    Considering how many Goldman Sachs people have somehow found their way into the Obama administration

    It would be good if we had a two-party system. What we have is a single party with two sections. One section is wholly owned by Wall St, and the other section is just partially owned by Wall St. Citizens United is just going to make this worse.

    Obama will be remembered as one of our best Republican presidents, like Clinton. You’ll never guess who said this:

    I think Bill Clinton was the best Republican president we’ve had in a while

    Link, link.

  28. Dean says:

    Two thoughts:

    1) First time in recent memory we had near consensus on Outside the Beltway. I think we all virtually agree that someone should be held accountable for the role of the big banks during the financial crisis.

    2) Even if the DOJ couldn’t have proven fraud, the government, as we have seen, has endless cash and should have at least made the effort to get Goldman to plead to something under the threat of a long, expensive and drawn-out litigation process.

  29. jukeboxgrad says:

    First time in recent memory we had near consensus on Outside the Beltway

    This is a topic where OWS views and tea party views tend to coincide, but no one has been able to figure out how to put those two forces together to address the problem that’s being discussed.

  30. Rob in CT says:

    Dick Durban: “They frankly own the place.”

    This is an actual “both sides do it” issue. Both parties are captured (you can quibble and say the GOP is more captured, but in the long run that’s not even clear).

    The financial services “industry” is an incredibly powerful special interest. Not only does it have lots of money to donate to politicians, it has the country’s economy by the balls (nice economy you have there. Shame if anything were to happen to it), as we saw in 2008/2009.

    Look back at the choices in ’08. For the Dems: Obama, who used a bunch of recycled Clinton aides, and Hillary Clinton. For the GOP: McCain… who was the runner up? Romney? Heh. Nobody there who was going to seriously take on the Goldman Sax’s of the world.

    Banking, generally speaking, is a good thing we need. But this sh*t is out of control.

  31. jukeboxgrad says:

    this sh*t is out of control

    The heart of the problem is the financialization of our economy. This is about people getting rich by mostly just shuffling paper around, while creating little or nothing of real value. Romney’s career is an excellent example.

    In that article, the whole story is summarized in one graph: “Share in GDP of US financial sector since 1860.” The financial sector is a cancer that’s gobbling up the rest of the economy. Owning the government is a key part of this process.

  32. Bill says:

    Just more proof that the banks have bought off the public officials in this country. The bogus documents used to foreclose, the illegal foreclosures against people, and I can go on and on. Not one person is going to jail for breaking the laws in these cases. Go back to my first sentence- Just more proof that the banks have bought off the public officials in this country.

  33. JEHR says:

    It is plain to see that the US Department of Justice believes, as do neo-classical economists like Alan Greenspan, that fraud cannot exist in the markets. Thus we have the justice department’s pronouncement that Goldman Sachs did not commit fraud as described in the Levin/Coburn report.

    Poppycock! Goldman Sachs is a “Super Predator.”

    This decision just shows how well Goldman has captured the government, the politicians and the regulators.

    William K. Black has been investigating and writing about control frauds for a long time.

    Here are a few excerpts from his paper (in bold and italics) and some comments on their use by Goldman:

    “Control frauds have…shown the ability to get ‘clean’ opinions for financial statements that purport to show that the company is highly profitable and solvent when the company is in fact deeply insolvent and unprofitable and pervasively corrupt.”

    1. Investment Bank Goldman was probably insolvent before it became a bank holding company in 2008;
    2. The Federal Reserve then gave Goldman access to about $800 Billion worth of short-term loans from its discount window;
    3. Goldman received $13 Billion in bailout money via AIG;
    4. Goldman received TARP money worth $10 Billion;
    5. Blankfein claims that he did not need the bailout money from TARP but he was very conversant with Paulson, a former Goldman guy;
    6. The Federal Reserve bought the toxic assets of banks to make the banks appear profitable and solvent.

    “…only the CEO can optimize the company for fraud. He optimizes the company by having it invest primarily in assets that have no readily ascertainable market value.”

    1. Blankfein hired and paid the rating agencies to rate Goldman’s junk CDOs made from sub-prime mortgages as AAA–as safe as Treasuries;
    2. Goldman created sup-prime securities that were grossly inflated in value which helped extend the life of the financial fraud to 2007;
    3. Goldman’s toxic securities grew at a rapid rate until Blankfein realized that the mortgage market would collapse from bad securities;
    4. Blankfein made bets on the collapse of the mortgage market;
    5. Blankfein helped create the scheme to thus produce false assets, false sales and grossly inflated prices to produce additional profits from fees and from bets;
    6. Blankfein’s claim on false profits were greater than any “real” profits;
    7. Goldman Sachs used robo-signing (forgery) to produce the paperwork for foreclosures. They promised to never do that again!