Goldman Sachs said it was cleared of wrongdoing after an investigation into a $1.3-billion subprime mortgage deal, a surprising victory for the bank.
The Securities and Exchange Commission’s decision to forgo action is an about-face for the federal regulator. In February, the SEC notified Goldman that it planned to pursue a civil enforcement action over the deal, a package of subprime mortgages in California, that the bank sold to investors in 2006.
The SEC was examining whether Goldman misled investors into thinking the mortgage securities were a safe bet. Goldman had said it would fight to convince regulators they were mistaken.
Goldman was “notified by the SEC staff that the investigation into this offering has been completed,” the bank said in a quarterly filing released on Thursday, “and that the staff does not intend to recommend any enforcement action.”
The announcement is the latest indication that investigations into the crisis are petering out as the deadline to file cases approaches. While the SEC has brought more than 100 financial crisis-related cases, the agency was aiming to take a final crack at punishing Wall Street for its role in the crisis.
After President Obama announced the creation of a special task force in January to investigate the residential mortgage mess, the SEC and other authorities vowed to hold the banks accountable. Wall Street packaged and sold subprime mortgages to investors, as well as the government-owned mortgage finance giants Fannie Mae and Freddie Mac, which suffered billions of dollars in losses.
Goldman’s Fremont deal, known as Fremont Home Loan Trust 2006-E, was one piece of a broader investigation into the mortgage-backed securities. Wells Fargo and JPMorgan Chase have also received warnings of potential action by the SEC.
“Mortgage products were in many ways ground zero in the financial crisis,” Robert Khuzami, the agency’s enforcement director, said at a news conference for the task force.
The agency, along with other federal regulators and the Justice Department, is also pursuing an array of other cases stemming from the financial crisis.
The banks face an international inquiry into interest-rate rigging. More than a dozen banks around the world are under investigation for manipulating a benchmark rate to bolster profits and deflect concerns about their health. In June, British and American authorities delivered the opening blow in the case, fining Barclays $450 million for its efforts to manipulate the London interbank offered rate, or Libor.
In a regulatory filing on Thursday, JPMorgan further outlined its exposure to the case. While the bank has previously disclosed that it received subpoenas and requests for interviews from an array of authorities — including the SEC, Justice Department, Commodity Futures Trading Commission and regulators overseas — the bank revealed new details on Thursday about its exposure to private litigation.
JPMorgan said that brokerage firms and local towns that sued the bank, claiming they lost money because of problems with Libor, have cited wrongdoing starting in 2005. Until now, the bank said the scrutiny dated back to 2006.
Goldman is not involved in the Libor case. The bank, however, is not yet off the hook for the Fremont deal. Last year, the regulator overseeing Fannie and Freddie filed suits against 17 financial firms that sold the mortgage giants nearly $200 billion in mortgage-backed securities that later soured. In its action against Goldman, the Federal Housing Finance Agency cited the Fremont investment.
Still, the announcement on Thursday is welcome news for Goldman, allowing the bank to avoid another major battle with the SEC over the mortgage crisis. In 2010, Goldman paid $550 million to settle accusations that it sold a mortgage investment that was intended to collapse. The bank, the SEC said, failed to disclose to investors that the hedge fund manager John Paulson had helped create — and bet against — the deal.
© 2012 The New York Times News Service
