Prosecutors at the Manhattan District Attorney's Office who are examining Goldman Sachs Group may have an easier time than federal authorities in bringing criminal charges because of a 90-year-old New York state law.
District Attorney Cyrus Vance jnr subpoenaed Goldman Sachs, the fifth-biggest US bank by assets, for records on
its activities leading into the credit crisis, two people familiar with the matter said.
Vance may bring charges under the state's Martin Act, which lawyers call a potent tool for New York prosecutors probing investment frauds, Ponzi schemes and other white-collar crime.
To prove securities fraud in federal court, prosecutors must show that a defendant intended to defraud victims and that the investors relied on misstatements or omissions.
Under the Martin Act, prosecutors aren't required to prove intent, said Michael Perino, a law professor at St John's University in New York.
"The reason why New York prosecutors love it so much and Wall St firms hate it so much is that it is a much, much easier case to bring," Perino said. "All a prosecutor has to show under the Martin Act is a material misstatement in connection with a securities offering."
Vance's subpoena of New York-based Goldman Sachs related to the US Senate's Permanent Subcommittee on Investigations report on Wall St's role in the collapse of the financial markets, the sources said.
The subcommittee, led by Michigan Democrat Carl Levin, released a 640-page report in April that accused the bank of misleading buyers of mortgage-linked investments. The firm has said its testimony was truthful.
Vance is reportedly far from deciding whether to charge any individuals with crimes.
Last year, Goldman Sachs paid US$550 million to settle SEC claims related to its marketing of collateralised debt obligations. The settlement resolved claims that it failed to disclose that hedge fund Paulson & Co was betting against, and influenced the selection of, CDOs the firm was packaging and selling.
- Bloomberg
