Goldman Sachs' $5 Billion Deal
The numbers alone are staggering: $13 billion paid out by JPMorgan Chase to atone for its role in the economic meltdown of 2008, and more than $5 billion to be doled out by Goldman Sachs.
Hundreds of millions of dollars from those banking giants will flow back to the pension funds of California’s state workers and teachers, with millions more directed to help distressed homeowners in Sacramento and 24 other Central Valley counties ravaged by the housing collapse.
Both agreements stem, in large part, from the work of two assistant U.S. attorneys who have spent long hours and weekends poring over tens of millions of financial documents in their offices on the 10th floor of Sacramento’s federal courthouse.
On Monday, hours after the U.S. Justice Department announced the Goldman Sachs settlement, the pair, Colleen Kennedy and Kelli Taylor, sat down with The Sacramento Bee to discuss how they ended up in the middle of two of the historic settlements that have resulted from the nation’s mammoth mortgage fraud scandal.
“We spent every day of the last two years working on this case,” Kennedy, 39, said after finishing a news conference held by her boss, U.S. Attorney Benjamin Wagner, to announce the deal and praise the pair and others who worked with them.
“We spent a lot of time on planes,” added Taylor, 44.
The settlement is the latest of five the Justice Department has reached with Wall Street banking behemoths over practices that contributed to the near collapse of the world economy in 2008.
Under the pact’s terms, Goldman Sachs agreed to shell out $5.06 billion to resolve claims the company misled investors about the stability of its mortgage-backed securities.
That agreement follows an earlier effort – also spearheaded by Taylor, Kennedy and their colleagues – that led to JPMorgan Chase, the nation’s largest bank, agreeing in November 2013 to pay out $13 billion in what at the time was the largest settlement with a single entity in U.S. history. That settlement included an agreement to repay nearly $300 million to the California Public Employees’ Retirement System and the California State Teachers’ Retirement System – more commonly known as CalPERS and CalSTRS.
The settlement record was eclipsed in August 2014, when Bank of America agreed to a $16.65 billion deal.
The Goldman Sachs settlement includes a $2.385 billion civil penalty, the largest ever levied by federal prosecutors in the Sacramento-based Eastern District of California. Wagner lavished praise on investigators who made it happen.
“I am very pleased that this office, which serves the district that was ravaged by the financial crisis, played a major role in delivering a measure of justice in this matter,” Wagner said. “This was not a case involving a lot of attorneys from Washington that were working on it.
“It really pretty much exclusively was a product of the hard work done by this team and this office.”
At the news conference, Wagner defended the fact that no criminal prosecutions were announced, addressing the issue before being asked about it. He noted that the deal announced Monday allows prosecutors and agents to investigate Goldman Sachs and requires the company to cooperate in any such probe.
“There’s a lot of blame to go around,” Wagner said. “That does not necessarily equate to a scheme by high-level employees of the company. If there is a criminal case to be made, we will make it.”
Wagner said his office is not conducting a criminal probe of Goldman Sachs or any of its employees. But he noted that the Justice Department in September issued guidelines encouraging an approach in the scrutiny of big financial institutions that includes both civil penalties and the possibility of criminal prosecutions.
The guidelines spelled out in a seven-page memo state that investigators “should focus on individual wrongdoing from the very beginning of any investigation of corporate misconduct.”
The Sacramento office’s involvement in the JPMorgan and Goldman cases stemmed from Wagner’s active participation in the Justice Department’s nationwide initiative targeting residential mortgage-backed securities.
Wagner’s office has been one of the most aggressive in the country on mortgage fraud, having criminally prosecuted nearly 300 such cases since the financial collapse. Wagner successfully sought the JPMorgan case and assigned it to Taylor, Kennedy, former Assistant U.S. Attorney Richard Elias, and their boss, David Shelledy, the office’s civil chief.
The JPMorgan deal led U.S. Attorney General Eric Holder in 2014 to honor the four of them with the Award for Distinguished Service, the second-highest award for employee performance that his office bestows.
Kennedy, who joined the U.S. Attorney’s Office in 2012, and Taylor, who came in 2009, were defense lawyers while in private practice. They found they worked well together, sharing duties and trips and sometimes splitting them when necessary, all while juggling their home lives and children. Taylor has two teenagers at home and two older stepchildren.
Kennedy became a mother in July 2014.
“I actually had a baby during this investigation,” she said.