Washington Shares of Goldman Sachs Group Inc. plunged 9 percent Friday after word that the Justice Department had opened a criminal investigation of the Wall Street powerhouse over mortgage securities deals it arranged.
The criminal inquiry follows civil fraud charges filed by the government against Goldman two weeks ago and as Congress pushes toward enacting sweeping legislation aimed at preventing another near-meltdown of the financial system.
The investigation by the U.S. attorney’s office in Manhattan stems from a criminal referral by the Securities and Exchange Commission, a knowledgeable person said Thursday. The person spoke on condition of anonymity because the inquiry is in a preliminary phase.
The SEC brought civil fraud charges against Goldman and a trader in connection with the transactions in 2006 and 2007.
The agency alleged the firm misled investors by failing to tell them the subprime mortgage securities had been chosen with help from a Goldman hedge fund client, Paulson & Co., that was betting the investments would fail. Goldman and the trader, Fabrice Tourre, have denied wrongdoing and said they will contest the allegations in court.
Word of the Justice Department action came two days after Goldman executives were grilled and publicly rebuked by senators at a politically charged hearing. And it arrived a day after a group of 62 House lawmakers, including Judiciary Committee Chairman John Conyers, D-Mich., asked Attorney General Eric Holder to order a criminal probe of Goldman.