Goldman may lose room to manoeuvre after testimony

Goldman Sachs Group may have backed itself into a corner by speaking out quickly to counter fraud claims by the US Securities and Exchange Commission.

In the two weeks since the SEC filed its lawsuit, Goldman Sachs has released multiple written defences, sent executives to Capitol Hill for sworn testimony and put chief executive Lloyd Blankfein on television to explain the firm's conduct as the housing market soured.

While broadcasting its story, the New York investment bank also has given regulators, lawmakers and law enforcement agencies material to scour for contradictions that could weaken its defence.

SEC attorneys were already poring through the April 27 Senate testimony of Fabrice Tourre, the 31-year-old banker at the centre of the lawsuit, looking for any deviation from sworn statements he made during the agency's investigation, one source said.

"Going under oath and committing yourself before you have any idea what kind of a case might be brought against you - and more particularly what the evidence in that case might be - is going to seriously curtail a defence lawyer's ability to find running room to defend you," said Samuel Buell, a former federal prosecutor who is now a law professor at Washington University in St Louis.

Before the hearing, Tourre and Blankfein, 55, were interviewed under oath by the Senate Permanent Subcommittee on Investigations.

Senator Carl Levin, the Michigan Democrat who heads the panel, said he was looking into whether they "tried to fudge" their responses in the public hearing last week.

Blankfein will appear this week at the annual shareholders meeting to answer questions related to the lawsuit.

Robert Khuzami, the SEC's chief of enforcement, said in a closed meeting with congressional staff on April 29 that it wouldn't be appropriate to discuss whether there are settlement talks taking place, a source said.

Khuzami also declined to comment on why Tourre was the only individual named in the lawsuit, the person said.

The SEC's April 16 lawsuit revolves around whether the firm should have told investors in 2007 that hedge fund Paulson & Co helped pick the underlying securities for a collateralised debt obligation - and then bet against it. Paulson wasn't accused of any wrongdoing.

Tourre's public statements made it less likely he could change his story later and negotiate a lesser penalty with the SEC in return for information that could be damaging to the firm or other executives, one source said.

Tourre, whose legal fees are paid by Goldman Sachs, said he "categorically" denied the SEC's allegations.

He may have testified to save his reputation and career, Buell said.

Goldman Sachs' stock dropped 13 per cent on the day the SEC announced its case and declined 9.4 per cent on Friday after reports that federal prosecutors in New York are investigating the matter to determine whether to pursue a criminal fraud case.

In terms of public opinion, one analyst said, Goldman Sachs has "already been condemned, the question is the price".

- BLOOMBERG