What a Criminal Inquiry Portends for Goldman

by Peter Henning

The disclosure of the Justice Department’s inquiry into Goldman Sachs substantially alters the calculus for how the firm and its employees should approach the civil fraud charges filed by the Securities and Exchange Commission.

Even though a criminal investigation is only in its earliest stages at this point, the mere revelation that the United States attorney’s office in Manhattan is involved shows the powerful impact such information has on the firm, as Goldman’s shares dropped almost 10 percent in response to the news.

As I discussed in a post last week, “What’s Next for Goldman Sachs,” a criminal investigation may well cause individuals at the firm to assert their Fifth Amendment privilege against self-incrimination if the S.E.C. seeks to depose them in its suit. The potential for criminal charges creates much greater uncertainty for Goldman itself, a serious problem for a firm that needs the trust of its customers and access to credit markets that, as the past two years have shown, despise even a whiff of doubt about an enterprise’s future.

Read the rest here.