May 20, 2011 6:51 pm

Goldman Sachs facing federal investigation

For a brief time, it appeared Goldman Sachs executives could exhale.

The US bank began the year expecting much of the regulatory scrutiny and public backlash it endured throughout 2010 would soon subside, returning investors’ attention to welcome subjects, such as Goldman’s superior returns.

Yet one US senator’s stinging rebuke, delivered in April with a promise to refer his subcommittee’s probe on the causes of the crisis to federal prosecutors, reignited fears of fresh problems.

Since the Senate’s permanent subcommittee on investigations unveiled its report, which cited Goldman as a case study, the bank’s shares have dropped by more than 13 per cent.

The US Justice Department has since acknowledged it was reviewing the findings. And last week Carl Levin, the Michigan Democrat who chairs the investigations subcommittee, told the Financial Times there was “real hope” law-enforcement officials would act on his panel’s report, which accused Goldman of misleading investors and Congress.

Shareholders also learnt that New York’s attorney-general had opened his own inquiry into the way Wall Street packaged and sold mortgages. The prosecutor requested meetings with three banks, including Goldman.

While it may be impossible for Goldman’s investors to predict when this period draws to a close, Mr Levin’s message seems clear: Do not hold your breath.

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