The Senate report comes less than a year after Goldman Sachs paid $550 million to resolve SEC claims that it failed to disclose that hedge fund Paulson & Co. was betting against, and influenced the selection of, CDOs the company was packaging and selling.
Goldman Sachs, in its settlement with the SEC, acknowledged that marketing materials for the 2007 CDO deal contained "incomplete information."
The Senate subcommittee's bipartisan report, buttressed by 2,800 footnotes and thousands of internal documents from Goldman Sachs and other firms, may have more impact than previous investigations into the crisis.
It's an open question whether the Justice Department and the SEC will review its findings. Levin does not have the power to refer the allegations to federal authorities on his own. The subcommittee has a formal process for making referrals, which requires Levin to get the support of Coburn before making an official referral. Levin is going to recommend that the subcommittee make referrals, though he has not done it yet, staff members said.
The Levin report will be examined by policy makers including the SEC and Commodity Futures Trading Commission, which are writing hundreds of Dodd-Frank rules governing derivatives, mortgage securities and proprietary trading.
Coburn, the senior Republican on the subcommittee, said the review carries more heft than the three separate reports issued earlier this year by a politically divided Financial Crisis Inquiry Commission.
"We don't need commissions to do our job and this proves it," Coburn said. The FCIC "spent $8 million and 15 months" on its inquiry and "didn't report anything of significance."
The panel said Goldman Sachs relied on "abusive" sales practices and was rife with conflicts of interest that encouraged putting profits ahead of clients.
"While we disagree with many of the conclusions of the report, we take seriously the issues explored by the subcommittee," van Praag said.
Van Praag pointed to the firm's recent examination of its business practices that prompted it to make "significant changes that will strengthen relationships with clients, improve transparency and disclosure and enhance standards for the review, approval and suitability of complex instruments."
In the case of one CDO, Hudson Mezzanine Funding 2006-1, Goldman Sachs told investors its interests were "aligned" with theirs while the firm held 100% of the short side, according to the report.