Isn’t that the truth…And this another example of a financial firm that admits that they misled their own investors (just like Wells Fargo settlement last week that admitted that they misled their investors in mortgage sales) and yet no criminal charges in both cases.
In the complaints released Monday, the Department of Justice accused Goldman of misleading its own investors as to the strength of its mortgage-backed securities it was selling between 2005-2007. In 2006, for example, Goldman purchased a package of mortgages from a company called New Century Mortgage Corporation. Goldman’s own employees reviewed the loans and flagged them for “extremely aggressive underwriting” practices — meaning New Century’s employees were selling mortgages to buyers who couldn’t afford them, using shoddy documentations, and dubious financial models.
Internally, Goldman then took a close look at a third of those New Century Loans, to see if they were truly healthy investments. It decided to drop a full quarter of them, because they lacked key documents or listed incomes of borrowers that suggested the loans would go into default. The firm then stopped its internal review process, and sold the remaining 75 percent of the New Century loans to investors without saying anything about the problems it had encountered.
The DOJ identified this behavior as a violation of the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) — a key financial regulation that sets out a 10 year statute of limitations for fraud. “One of our leading financial institutions that it did not live up to the representations it made to investors about the products it was selling,” said US Attorney Benjamin B. Wagner, explaining Mondays settlement.
The Department of Justice, however declined to name a single individual at Goldman Sachs responsible for the misconduct. That’s despite a new policy directive issued in September, 2015 that declared the DOJ would make “individual accountability” a centerpiece of its financial crime investigations. That policy, enshrined in a memo written by Deputy Attorney General Sally Yates, seemed to direct the DOJ against large financial settlements, and towards individual prosecutions. “In the short term certain cases against individuals will not provide as robust of a monetary return,” Yates wrote, while advising DOJ staffers that “pursuing individual action will result in significant long term deterrence.”
The DOJ still reserves the option to pursue individual action against Goldman executives, but no such case has yet been made public.
So far, other major financial financial institutions have paid out big fines, but financial executives have managed to evade punishment. While JPMorgan Chase paid $13.3 billion in 2013, Bank of America paid $16.6 billion in 2014, and Citi paid a $7 billion settlement in 2014 — no major executives of any of these financial institutions have faced a criminal investigation.
Bartlett Naylor, a former chief of investigations for the US Senate Banking Committee, says that today’s Goldman Settlement seems to suggest the Yates memo hasn’t shifted the DOJ’s strategy. “It’s disappointing that no individuals seem to be identified in this investigation,” Naylor, who now works for as the Financial Policy Advocate for Public Citizen, said. “We were led to believe from the Yates memo, that we would not see settlements without names identified.”