Government allegations that financial giant Goldman Sachs defrauded investors are creating a political storm, with some lawmakers hoping that the civil lawsuit filed Friday by the Securities and Exchange Commission is just the beginning.

As the heat increases on the investment bank, which has denied all wrongdoing, Politico reports that they have hired Greg Craig for legal help. Craig formerly worked as the top lawyer for President Barack Obama and left the White House earlier this year to join the law firm Skadden, Arps.

The executive order Obama signed the day after he was inaugurated bars high-level executive branch appointees who leave the administration, like Craig, from communicating with their former employers. That executive order also prohibits such officials from lobbying the federal government during the remainder of the Obama administration.

The Politico article notes that since the SEC is an independent government agency, it would not coordinate with the White House on enforcement matters, such as the pending lawsuit targeting Goldman Sachs.

The article goes on to quote a source familiar with Goldman Sachs as saying Craig was hired for his ability to give advice and his “deep understanding of the legal process and the world of Washington.”

The U.S. government is not the only authority interested in further probing Goldman Sachs.

The British and German government have also raised the possibility of investigations. And on Capitol Hill, Democrats in the House and Senate are calling for more answers.

Reps. Elijah Cummings (D-Md.) and Peter DeFazio (D-Ore.) are circulating a letter that asks the SEC to further investigate the financial products offered by Goldman Sachs, beyond the one investment product targeted in Friday’s lawsuit, and to refer any matters of criminal misconduct to the Department of Justice.

According to the Center for Responsive Politics’ research, Cummings collected $3,500 from Goldman Sachs’s political action committee during the late 1990s, and DeFazio last year returned the sole contribution he received from Goldman Sachs ($2,500 from its political action committee, given ahead of the 2008 elections).

The congressmen hope the SEC will particularly turn its attention to those Goldman Sachs-issued financial products insured by the American International Group (AIG), which nearly collapsed in 2008 before taxpayers gave more than $100 billion in financial assistance and has seen its once-massive reserves of clout decline.

In the upper chamber, Sen. Carl Levin (D-Mich.), who heads the Senate’s Permanent Subcommittee on Investigations, is planning to hold hearings next week that will focus at least in part on Goldman Sachs’ role in the financial crisis and subprime housing meltdown, according to Newsweek. The Center for Responsive Politics’ research indicates Levin has received $19,050 from the political action committee and employees of Goldman Sachs since 1989, mostly during the 1990s, although he did receive $5,000 from their PAC ahead of the 2008 election.

And Fortune suggests that the manager of the private hedge fund cited in the SEC lawsuit may be an eventual enforcement target. While no formal charges have been made against him, John A. Paulson’s hedge fund allegedly hired Goldman Sachs to structure a financial investment product that allowed Paulson & Co. to choose which mortgage securities to invest in — based on a belief that they would lose value or default — and then take short positions against them.

According to Forbes, Paulson is one of the richest individuals in America. As Capital Eye reported Friday, Paulson has been a major contributor to Republicans and Democrats, giving at least $213,000, along with his wife, since 1999, with about 60 percent of that benefiting Republicans.

Politico further notes that Paulson has recently hosted fund-raisers for Sen. Charles Schumer (D-N.Y.) and the Republican National Committee. At the latter fund-raiser, RNC Chairman Michael Steele and Mitt Romney headlined the event in Paulson’s home.

Hedge funds in general have long favored Schumer, who ranks among the top five all-time recipients of their contributions, with many of them operating in New York. Schumer has also been an advocate for the industry, such as opposing tax increases on hedge funds and criticizing some regulation measures. Republican leaders are also attempting to court hedge fund contributions. Recently, Senate Majority Leader Mitch McConnell and National Republican Senatorial Committee Chairman John Cornyn asked Wall Street executives for money and pledged Republicans would work to prevent some of the least market friendly aspects of the Democrats’ plans.

The increased scrutiny comes as the Obama administration and Senate Democrats hope to finalize a deal on financial regulatory reform. Capital Eye outlined many of the major lawmakers and industries in the legislative battle surrounding Wall Street reform last year in our series, “Crossing Wall Street.”

Center for Responsive Politics Researcher Erin Williams contributed to this report.



For permission to reprint for commercial uses, such as textbooks, contact the Center: Feel free to distribute or cite this material, but please credit the Center for Responsive Politics.For permission to reprint for commercial uses, such as textbooks, contact the Center: [email protected]

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