Shares of Goldman Sachs Group Inc. tumbled Friday on concern that the government is launching a criminal investigation into some of the New York investment bank's mortgage securities deals.
The worries hurt financial services industry shares. The Standard & Poors Financials sector index dropped about 2 percent in early afternoon trading, logging the worst performance of the 10 S&P industry groups.
The investigation by the U.S. attorney's office in Manhattan stems from a criminal referral by the Securities and Exchange Commission, a knowledgeable person said Thursday. The person spoke on condition of anonymity because the inquiry is in a preliminary phase.
Standard & Poor's Equity Research analyst Matthew Albrecht, on Friday, cut his investment recommendation on Goldman shares to "Sell" from "Hold" and lowered his price target price by $40 to $140. The shares have fallen more than 20 percent since the SEC said it was charging Goldman.
"Though traditionally difficult to prove, we think the risk of a formal securities fraud charge, on top of the SEC fraud charge and pending legislation to reshape the financial industry, further muddies Goldman's outlook," Albrecht wrote.
Word of the Justice Department action came a day after a group of 62 House lawmakers, including Judiciary Committee Chairman John Conyers, D-Mich., called for a criminal probe of Goldman.
The investigation is in addition to the ongoing civil fraud case brought by the Securities and Exchange Commission alleging that Goldman misled investors by failing to tell them the subprime mortgage securities had been chosen with help from a Goldman hedge fund client that was betting the investments would fail. Goldman has denied wrongdoing and said it will contest the allegations in court.
SEC spokesman John Nester declined any comment on the matter, as did Yusill Scribner, a spokeswoman for the U.S. attorney's office in Manhattan. A Goldman spokesman said that given the recent focus on the firm, it's not surprised by the report of an inquiry and that it would cooperate fully with any request for information.
Goldman shares fell $15.18 or 9.5 percent, to $145.06, in Friday afternoon trading.
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