Goldman Sachs under criminal probe: source

The U.S. attorney's office in Manhattan is conducting a criminal investigation of Goldman Sachs over mortgage securities deals the big Wall Street firm arranged, a knowledgeable person said Thursday.

The person said the probe stems from a criminal referral by the U.S. Securities and Exchange Commission. The source spoke on condition of anonymity because the inquiry is in a preliminary phase.

The SECthis month filed civil fraud charges against Goldman and a trader in connection with the transactions in 2006 and 2007. The agency alleged the firm misled investors by failing to tell them the subprime mortgage securities had been chosen with help from a Goldman hedge fund client, Paulson & Co., that was betting the investments would fail.

Goldman has denied the charges and said it will contest them in court.

Word of the Justice Department action came a day after a group of 62 legislators in the U.S. House of Representatives, including judiciary committee chairman John Conyers, a Michigan Democrat, asked Justice to conduct a criminal probe of Goldman.

"On the face of the SEC filing, criminal fraud on a historic scale seems to have occurred in this instance," the representatives, mostly Democrats, said in a letter to U.S. Attorney General Eric Holder.

SEC spokesman John Nester wouldn't confirm or deny that the agency had made a referral to the Justice Department for a criminal investigation. He declined any comment on the matter, as did Yusill Scribner, a spokeswoman for the U.S. attorney's office in Manhattan.

Goldman spokesman Lucas van Praag said, "Given the recent focus on the firm, we're not surprised by the report of an inquiry. We would co-operate fully with any request for information."

The Wall Street Journal first reported the Justice Department action.

The Justice Department move was the latest in a dramatic series of turns in the Goldman saga, which has pitted the culture of Wall Street against angry politicians in an election year, in the wake of the financial crisis that plunged the country and much of the world into the most severe recession since the Great Depression of the 1930s.