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Goldman dodges crisis-related charges twice in one day

August 10, 2012: 10:08 AM ET

SEC is still looking at JPMorgan and Wells Fargo.

Goldman SachsFORTUNE --All of a sudden, Goldman Sachs (GS) looks increasingly likely to get a pass for much of its alleged misdeed in the run up to the financial crisis. On Thursday, the bank was cleared of its remaining financial crisis-related charges by both the Securities and Exchange Commission and the Department of Justice. Other firms might not be so lucky.

What's more, in the biggest scandals now facing banks - charges that they fixed a key lending rate Libor and laundered money for Iran and others - Goldman isn't implicated. In fact, in the case of Libor, some have said that Goldman was a victim and could sue for damages.

MORE: Goldman Sachs trading profit plunges

But the bank isn't done paying for the financial crisis yet. Goldman increased what it thinks it could have to pay to resolve its pending litigation in the second quarter by $700 million to $3.4 billion, in part because the firm settled a class action suit brought by investors that alleged Goldman filled a registration statement that violated securities laws when it underwrote a 2006 $698 million mortgage bond. Terms of the settlement were not disclosed.

Still, it's a big turnaround for the firm once thought of the financial crisis' No. 1 villain, and it's sure to ignite new criticism that the government bungled investigations into crimes surrounding the financial crisis.

On Thursday, the Department of Justice said that there was no viable basis to bring criminal charges against Goldman for its role in selling mortgage bonds during the mid-2000s credit bubble. The investigation stemmed from a 635-page congressional report that uncovered numerous e-mails in which Goldman bankers and traders privately disparaged investments they were aggressively pitching to clients. The report also said that Goldman and others secretly bet against mortgage bonds they were marketing to clients as good investments.

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The firm had also been facing the possibility that it could be charged with securities fraud in connection with its role in selling a $1.3 billion bond made up of subprime mortgages called the Fremont Home Loan Trust 2006-E. Many of the mortgages appeared to have lower downpayments or be made to borrowers with lower credit scores than Goldman let on. But on Thursday, Goldman said that the SEC had told the firm earlier in the week that it had closed its investigation into the mortgage bond sale and decided not to bring an enforcement action.

Still, while Goldman looks increasingly in the clear, other firms continue to face financial crisis related charges. JPMorgan Chase (JPM) said the SEC is still deciding whether to bring charges against the firm related to mortgage bonds that it and Bear Stearns, which was bought by JPMorgan in mid-2008, sold. Wells Fargo's (WFC) mortgage operations also remain under investigation by the SEC. The fact that Goldman was let off the off the hook and that these banks remain under investigation may mean that charges against JPMorgan and Wells are more likely.

But if charges are coming, the government better hurry up. The statute of limitations for cases for financial crisis misdeeds, which in most instances is 5-years, is quickly running out.

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About This Author
Stephen Gandel
Stephen Gandel

Stephen Gandel has covered Wall Street and investing for over 15 years. He joins Fortune from sister publication TIME, where he was a senior business writer and lead blogger for The Curious Capitalist. He has also held positions at Money and Crain's New York Business. Stephen is a four-time winner of the Henry R. Luce Award. His work has also been recognized by the National Association of Real Estate Editors, the New York State Society of CPA and the Association of Area Business Publications. He is a graduate of Washington University, and lives in Brooklyn with his wife and two children.

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