Goldman Sachs Chief Executive Lloyd Blankfein has hired high-profile Washington defense attorney Reid Weingarten, according to a government source, as the Justice Department continues to investigate the bank.
Blankfein, 56, is in his sixth year at the helm of the largest U.S. investment bank, which has spent two years fending off accusations of conflicts of interest and fraud.
The move to retain Weingarten comes as investigations of Goldman and its role in the 2007-2009 financial crisis continue.
The news spooked already jittery investors. Goldman shares fell sharply in the final minutes of regular trading after Reuters reporting the hiring, finishing down 4.7 percent at $106.51, their lowest level since March 2009.
They slipped further in after-hours trade to $105.45.
The Senate's Permanent Subcommittee on Investigations (PSI) in April released a scathing report that criticized Goldman for exploiting clients by unloading subprime loan exposure onto unsuspecting clients in 2006 and 2007, and concluded that its top executives misled Congress during testimony in 2010.
Goldman has said it disagreed with many of the report's conclusions, but took seriously the issues addressed. The Justice Department launched its investigation in late April.
On Monday, Goldman said: As is common in such situations, Mr. Blankfein and other individuals who were expected to be interviewed in connection with the Justice Department's inquiry into certain matters raised in the PSI report hired counsel at the outset.
Blankfein has not been charged in any civil or criminal case.
Why do you bring in someone like that? said the source, who was not authorized to speak publicly, about Weingarten. It says one thing: that they're taking it seriously.
Robert Hillman, law professor at the University of California at Davis, said the move showed that the CEO has some concern over action that is likely to be taken, presumably by the Justice Department. But he added, It does not signify that he is guilty, or that any action is definitely going to be taken.
Weingarten, whose past clients include a former Enron accounting officer, was in a federal court in New York on Monday for the sentencing of another client, Anthony Cuti, the former CEO of the Duane Reade chain of drugstores, who was convicted of accounting fraud last year. Cuti was sentenced to three years in prison and a $5 million fine.
Weingarten did not respond to requests for comment. The Justice Department declined to comment.
This was the last thing that Goldman Sachs or any institutions in the sector needed, said Peter Kenny, managing director of Knight Capital in Jersey City, NJ. There is zero tolerance for risk or perceived risk right now.
A partner with Steptoe & Johnson LLP, Weingarten has represented a wide array of clients in criminal cases. They include former WorldCom Inc chief Bernard Ebbers, who was later convicted, and former Enron accounting officer Richard Causey, who pleaded guilty in exchange for a 5 to 7-year prison term.
In May, his client, former GlaxoSmithKline lawyer Lauren Stevens, was acquitted of charges of lying and obstructing a probe into the company's marketing practices.
I'm used to these monstrously difficult cases where everybody hates my clients, Weingarten told AmericanLawyer.com in May, although he described Stevens as a beloved figure.
Controversy has continued to swirl around Goldman Sachs and Blankfein in the aftermath of the credit crisis in which Goldman was accused of favoring some clients over others, and of sometimes trading against the interest of clients.
The U.S. Securities and Exchange Commission scored a $550 million settlement against the bank in a fraud lawsuit in July 2010, but other investigations continue.
In June, New York prosecutors subpoenaed the bank to explain its actions in the run-up to the financial crisis. In addition to the Justice Department, the New York Attorney General and the Securities and Exchange Commission are also investigating.
It was not immediately clear what charges, if any, Blankfein could face personally.
One former federal prosecutor, who was not authorized to speak publicly, said Blankfein may have hired outside counsel after receiving a request from investigators for documents or other information.
The Senate report raised questions about inconsistencies between testimony from Blankfein and other Goldman executives to Congress and emails unearthed in the Senate investigation. The subcommittee's chairman, Senator Carl Levin, has said the question of whether Blankfein and others committed perjury is up to the relevant federal agencies.
The former prosecutor cautioned that perjury cases were difficult to prove, adding that prosecutors would not bring charges unless they had a rock solid case.
Goldman earlier in August lowered its estimate for future legal costs to $2 billion from its $2.7 billion estimate three months earlier. It said it expects such costs to remain high for the foreseeable future.
(Reporting by Andrea Shalal-Esa; Additional reporting by Carlyn Kolker, Andrew Longstreth and Jonathan Stempel; Editing by Tim Dobbyn)