Shares of Goldman Sachs Group Inc. tumbled Friday, at one point plunging about 10 percent, amid reports of a criminal investigation by the Manhattan U.S. attorney’s office, as Standard & Poor’s lowered its rating on the stock to “sell” from “hold.”
Federal prosecutors in New York have begun investigating Goldman Sachs, raising the possibility of criminal charges against the company or its employees, a source familiar with the situation says.
In late afternoon trading, Goldman shares were down $13.35, or 8.3 percent, at $146.89. It earlier hit a low of $144.44, down 9.9 percent.
Goldman, the world's most powerful investment bank, said it was not surprised at the news. "Given the recent focus on the firm, we are not surprised by the report of an inquiry," a Goldman spokesman said. "We would fully cooperate with any requests for information."
The investigation from the Manhattan U.S. Attorney's Office ramps up pressure on Goldman less than two weeks after it was charged by the U.S. Securities and Exchange Commission with civil fraud for allegedly hiding information from investors about a mortgage-related security.
It comes only two days after Goldman CEO Lloyd Blankfein and other executives faced blistering cross-examinations from lawmakers at a Washington hearing into their behavior in trading mortgage-related products as the U.S. housing market began to crumble in 2007.
Meanwhile, S&P also cut its price target to $140 from $180.
“Though traditionally difficult to prove, we think the risk of a formal securities fraud charge, on top of the SEC fraud charge and pending legislation to reshape the financial industry, further muddies Goldman’s outlook,” banking analyst Matthew Albrecht wrote.
Merrill Lynch’s Guy Moszkowski cut his rating to “neutral” from “buy,” and slashed his price target to $160 from $2.20. “Most such probes end inconclusively, with no charges filed,” writes Moszkowski.
“We continue to believe GS has long-term earnings power beyond what is discounted in the share price. However, it is very difficult to see the shares making further progress until the matter has been resolved.”
Goldman, which had prided itself on its government connections, is now facing one of the biggest crises in its 140 year history and has become a poster boy for criticism of Wall Street's conduct that led up to the financial crisis.
In recent days there has been some speculation that Goldman might prefer to settle the SEC case to avoid further reputational damage.
In the closing hours of the questioning on Tuesday, Blankfein said Goldman was doing some soul searching and going over its business practices as a result of the accusations it was facing.
It was not immediately clear precisely which transactions prosecutors are investigating or whether there was a strong possibility that criminal charges could be brought.
News of the criminal probe was first reported by the Wall Street Journal, which said it resulted from a referral from the SEC.
A spokeswoman for the office of the Manhattan U.S. Attorney said she could "neither confirm nor deny" any Goldman investigation.
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