By Brooke Masters, chief regulation correspondent
UPDATE: It turns out that the Deparment of Justice asked for the file. The SEC didn’t make the referral. The DoJ request came after 62 members of Congress wrote to Eric Holder, attorney-general asking the DoJ to investigate Goldman.
The reports in the Wall Street Journal and the Washington Post that criminal prosecutors are now looking at the mortgage deal at the heart of the US Securities and Exchange Commission case against Goldman Sachs raise a key question: Why now?
The SEC is said formally to have referred the case to the US Attorney for the Southern District of New York. Such a step would not be unusual, but the timing would be.
Ordinarily, the SEC sends its evidence to prosecutors before filing its civil charges, not afterwards. That way, if the Justice Department does want to bring a criminal case, the two actions can be filed simultaneously. There are lots of good procedural reasons for doing it this way, so the two cases do not interfere with one another.
So, why act now?
One explanation would be time pressure: The SEC does act on its own and do the referral later when it is trying to shut down a still active fraud – a lot of the Ponzi scheme cases fit into this category. But the deal at the heart of the Goldman referral was done in 2007 and the SEC has been looking at this deal for close to a year now if not longer – it warned Goldman last July that the staff were considering filing civil fraud charges.
Another would be new evidence: perhaps something has turned up in the last two weeks that merits a criminal investigation. Maybe a new witness has come forward or the SEC might think prosecutors should look at something uncovered by the Senate hearing earlier this week.
The final possibility has a political tone: a criminal investigation of the firm (as opposed to its employees) sharply increases the pressure on Goldman to settle at a time at a time when public feelings against the bank are running high.
Goldman, which has denied wrongdoing, may be be plumping for the final option. “Given the recent focus on the firm, we are not surprised by the report of an inquiry,” a Goldman spokesman told Reuters. “We would fully cooperate with any requests for information.”
