March 31, 2023

DealBook: U.S. Goldman Disclosure a Rare Break in Secrecy

Senator Carl Levin has criticized what he called  questionable conduct by Goldman and other banks.Jim Watson/Agence France-Presse — Getty ImagesSenator Carl Levin has criticized what he called  questionable conduct by Goldman and other banks.

WASHINGTON — After deciding not to prosecute Goldman Sachs for its conduct during the financial crisis, the Justice Department did something rare: it publicly announced that the investigation was closed.

The unusual public announcement came after Goldman’s lawyers pushed for a notification that the bank would not be charged, according to two people with direct knowledge of the matter who spoke on condition of anonymity.

In a 450-word statement issued late Thursday, authorities said that “based on the law and evidence as they exist at this time, there is not a viable basis to bring a criminal prosecution.”

Many legal experts agree it would have been hard to bring charges. But the public announcement also raised eyebrows because under most circumstances criminal inquiries are shrouded in secrecy. When the Justice Department decides to end a criminal inquiry without prosecuting, it usually does not disclose that decision to the public — or even to the target of the investigation.

The Justice Department’s decision rankled Wall Street critics who want banks to pay for their actions. On Friday, the senator that had requested the criminal investigation denounced Goldman.

“Whether the decision by the Department of Justice is the product of weak laws or weak enforcement, Goldman Sachs” actions were deceptive and immoral,” Senator Carl Levin, a Michigan Democrat, said in a statement.

By closing its case, the Justice Department has removed the taint of a possible indictment against Goldman, which had already paid $550 million to settle a related civil matter brought by the Securities and Exchange Commission. “We believe that the Justice Department’s examination has been thorough and impartial,” said Andrew Williams, a Goldman Sachs spokesman.

Federal prosecutors began investigating Goldman more than a year ago after the Senate’s Permanent Subcommittee on Investigations issued a blistering report highlighting questionable conduct by Goldman and other banks. It focused on Goldman’s lucrative business of selling pools of subprime mortgage securities to clients while simultaneously betting on a decline in the housing market. In effect, the report concluded that Goldman had profited by betting against the very mortgage investments that it sold to clients.

It also suggested that Lloyd C. Blankfein, the chief executive of Goldman, might have misled lawmakers when testifying about the mortgage deals. Mr. Blankfein said that the bank never bet against its clients for its own profit.

As part of the report, Mr. Levin, the chairman of the subcommittee, referred Goldman’s case to the Justice Department for a criminal investigation in April 2011. But after investigating Goldman for more than a year, the Justice Department decided not to bring a case.

“The department and its investigative partners conducted an exhaustive review of the report and its exhibits, independently gathered and scrutinized a large volume of other documents, and tenaciously pursued potential evidentiary leads, including conducting numerous witness interviews,” the Justice Department said in its statement.

Separately, Goldman also disclosed on Thursday that the S.E.C. would not pursue any further claims against the bank related to the sale of a $1.3 billion mortgage bond deal.

On Friday, legal experts said that it was always unlikely that the government would bring a criminal prosecution against Goldman Sachs.

Ever since the 2002 indictment of Arthur Andersen caused the accounting giant to collapse and caused thousands of job losses, the government has been reluctant to bring charges against a company.

Instead, companies are now frequently offered so-called deferred prosecution agreements in which they pay a fine and agree to government oversight instead of facing criminal prosecution.

“The likelihood of the Justice Department indicting a ‘too big to fail bank’ like Goldman Sachs was always slim-to-none,” said Stephen M. Plotnick, a securities lawyer at Carter Ledyard Milburn. “And a major hurdle in a criminal prosecution of Goldman’s executives was proving that they intended to defraud their clients.”

While the decision not to charge Goldman was not surprising, the uncommon public announcement by the Justice Department raised eyebrows. Because it is illegal to disclose the existence of a grand jury investigation, under most circumstances criminal inquiries are shrouded in secrecy. And when the Justice Department decides to end a criminal inquiry without prosecuting, it usually does not disclose that decision to the public — or even to the target of the investigation.

The Goldman case, however, fit within an exception to these secrecy rules because of the immense publicity surrounding the investigation of the bank. Justice Department lawyers are permitted to comment on investigations that have leaked to the public or received substantial media attention, according to department guidelines.

For instance, in another case involving a bank, the Justice Department announced in August 2011 that it had closed a criminal investigation of Washington Mutual and its former executives connected to its collapse during the financial crisis.

The Justice Department has also announced that it was not bringing criminal charges in several leaked investigations of prominent politicians, including the former New York governor Eliot Spitzer and the former New Jersey senator Robert Torricelli. Earlier this year, federal prosecutors in Los Angeles announced that they had closed their investigation of Lance Armstrong without charging him, nearly two years after they began looking into accusations that he and his bicycling teammates had committed a variety of possible crimes by doping.

“Leaked investigations are like storm clouds that hang over companies and individuals, making it incredibly difficult for businesses to run or for people to live out their lives,” said Boyd M. Johnson III, a partner at WilmerHale and a former federal prosecutor. “The Department of Justice has a responsibility to seriously consider issuing public statements of declination where investigations have leaked. It is a matter of fundamental fairness.”

While it no longer faces the prospect of criminal charges, Goldman has absorbed substantial damage to its reputation from Abacus, the complex subprime mortgage product that it sold to clients. And even though it settled with the S.E.C., a midlevel employee in the bank’s mortgage unit, Fabrice Tourre, still faces a civil trial related to the Abacus transaction. Its public image has also taken a hit from unflattering portrayals in the media, including its depiction as a “vampire squid” in a Rolling Stone article.

On Friday, Mr. Levin said that the Justice Department’s decision only highlighted the need for stiffer regulations for Wall Street banks under the new Dodd-Frank financial reform laws.

“Yesterday’s announcement makes it even more important that regulators implement Dodd-Frank with rules that do not water it down, and that they enforce those rules with vigor,” he said. “The integrity of our financial markets and the strength of our economy demand that we make sure that actions such as Goldman Sachs’s and other recently discovered misdeeds by financial institutions are ended.”

A version of this article appeared in print on 08/11/2012, on page B1 of the NewYork edition with the headline: U.S. Goldman Disclosure A Rare Break in Secrecy.

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I.M.F. Reports Cyberattack Led to ‘Very Major Breach’

WASHINGTON — The International Monetary Fund, still struggling to find a new leader after the arrest of its managing director last month in New York, was hit recently by what computer experts describe as a large and sophisticated cyberattack whose dimensions are still unknown.

The fund, which manages financial crises around the world and is the repository of highly confidential information about the fiscal condition of many nations, told its staff and its board of directors about the attack on Wednesday. But it did not make a public announcement.

Several senior officials with knowledge of the attack said it was both sophisticated and serious. “This was a very major breach,” said one official, who said that it had occurred over the last several months, even before Dominique Strauss-Kahn, the French politician who ran the fund, was arrested on charges of sexually assaulting a chamber maid in a New York hotel.

Asked about the reports of the computer attack late Friday, a spokesman for the fund, David Hawley, declined to provide details or talk about the scope or nature of the intrusion. “We are investigating an incident, and the fund is fully functional,” he said.

Because the fund has been at the center of economic bailout programs for Portugal, Greece and Ireland — and possesses sensitive data on other countries that may be on the brink of crisis — its database contains potentially market-moving information. It also includes communications with national leaders as they negotiate, often behind the scenes, on the terms of international bailouts. Those agreements are, in the words of one fund official, “political dynamite in many countries.” It was unclear what information the attackers were able to access.

The concern about the attack was so significant that the World Bank, an international agency focused on economic development, whose headquarters is across the street from the I.M.F. in downtown Washington, cut the computer link that allows the two institutions to share information.

A World Bank spokesman said the step had been taken out of “an abundance of caution” until the severity and nature of the cyberattack on the I.M.F. is understood. That link enables the two institutions to share nonpublic data and conduct meetings, but users of the system say that it does not permit access to confidential financial data.

Companies and public institutions are often hesitant to describe publicly the nature or success of attacks on their computer systems, partly for fear of providing information that would be useful to the individuals or countries mounting the efforts. Even so, Google has recently been aggressive in announcing attacks and, in one recent case, of declaring that its origin was China, an accusation the Chinese government quickly denied.

But in the case of the I.M.F., officials declined to say where they believe the attack originated — a delicate subject because most nations are members of the fund.

The attacks were likely to have been made possible by a technique known as “spear phishing,” in which an individual is fooled into clicking on a malicious Web link or running a program that allows open access to the recipient’s network. It is also possible that the attack was less specific, a case in which an intruder was testing the system merely to see what was available.

The fund said that it did not believe that the intrusion into its systems was related to a sophisticated digital break-in at RSA Security that took place in March, which compromised some information that companies and governments use to control access to their most sensitive computer systems. RSA notified its clients of the loss of its data, and last month hackers attempted to use the information stolen from RSA to gain access to computers and networks at the Lockheed Martin Corporation, the nation’s largest military contractor.

After that attack, the World Bank briefly shut down external access to its most sensitive systems, for fear that the stolen information could make it a target. But it quickly resumed its normal operations and says it has seen no evidence of any attacks.

David E. Sanger reported from Washington, and John Markoff from San Francisco.

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