U.S. Faces High Stakes in Its Probe of Goldman Sachs

The criminal investigation into whether Goldman Sachs Group Inc. or its employees committed securities fraud is a potent reminder of the pressure on the Justice Department to land a big fish on Wall Street. But the agency also is under pressure to show it can win big cases without cutting corners, the Wall Street Journal reported Saturday.

"We're here not to win cases, but to do justice," Attorney General Eric Holder said in an interview before The Wall Street Journal reported that the U.S. attorney's office in Manhattan has launched a criminal probe of Goldman Sachs in connection with the securities firm's mortgage trading. "If we focus on that, we'll win the cases that we need to win."

As the Justice Department digs in for what is likely to be a long, complicated and contentious investigation, federal prosecutors are being pushed by their bosses to avoid the overzealousness that has led judges to reprimand some of them and even throw out criminal charges.

Earlier this year, Holder appointed a senior prosecutor and a team of more than two dozen people to make sure prosecutors are sharing with defense lawyers any evidence that could be favorable to their clients.

The move followed a series of botched prosecutions that include the December dismissal of stock-backdating charges against Broadcom Corp. executives. A federal judge said prosecutors intimidated key witnesses and "compromised the integrity of the trial."

Goldman Sachs denies any wrongdoing and has shown no signs of backing down to either a separate Securities and Exchange Commission fraud lawsuit filed April 16 or the preliminary criminal inquiry by federal prosecutors.

In a sign of how much is riding on the Goldman case, the company's shares fell $15.04, or 9.4 percent, to $145.20 in 4:00pm New York Stock Exchange composite trading Friday. At least two securities analysts cut their ratings on the stock, citing Goldman's deepening legal morass.

"Most such probes end inconclusively, with no charges filed," wrote Guy Moszkowski, an analyst at Bank of America Merrill Lynch, who cut his rating to "neutral" from "buy" and lowered his price target for the shares to $160 from $220. "However, it is very difficult to see the shares making further progress until the matter has been resolved."

Standard & Poor's Equity Research analyst Matthew Albrecht put a "sell" rating on Goldman and reduced his 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," Albrecht wrote.

So far, the Justice Department has little to show from its investigations of potentially illegal behavior on Wall Street related to the financial crisis. In November, for instance, jurors in Brooklyn, N.Y., acquitted two former Bear Stearns Cos. hedge-fund managers, expressing concern that the men were being made into scapegoats.

At an April hearing before the Senate Judiciary Committee, Sen. John Cornyn (R-Tex.) pressed Holder to explain the shortage of trials. "We simply haven't had the people who were guilty of criminal conduct brought to justice and tried in public and punished for committing crimes that the American people are paying for," Cornyn said.

In the Journal interview, Holder said it is his job to "insulate people from feeling that kind of pressure." "Even though we might want to focus on a particular priority, it doesn't mean we want people to do anything but the right thing."