The line between politics and law is getting blurrier by the day when it comes to Goldman Sachs.


After the SEC announced Friday that it would pursue a fraud action against Goldman, Democratic Rep. Marcy Kaptur (OH) is spearheading a letter to the Department of Justice asking for a criminal investigation of Goldman.

This comes as Republicans have wondered if the Democratic National Committee got a tip that the suit was coming so they could place some Google ads, as the DNC vociferously denies this (based on how Google works, they're probably right--see here), and as Republican Rep. Darrell Issa (CA) is requesting documents that might hit at any SEC/Democratic collaboration.

Fourteen other Democrats have signed onto Kaptur's letter calling for a DoJ investigation. They are: Jim McDermott (WA), Diane Watson 9CA), Christopher Carney (PA), Raul Grijalva (AZ), Keith Ellison (MN), John Lewis (GA), Charlie Melancon (LA), Tom Perriello (VA), Betty Sutton (OH), Jay Inslee (WA), Pete Stark (CA), Mike Honda (CA), John Salazar (CO), and Niki Tsongas (MA).

The letter is being promoted by a political group, the Progressive Campaign Chance Campaign Committee, a group that seeks to pressure lawmakers for liberal causes. And that's where the political/legal distinctions are blurred, in this case.

(During the health care debate, PCCC circulated a letter from Colorado Sen. Michael Bennet* calling for the public option to be included in final health care legislation. And that's where the political/legal blurring comes in.)

The group is orchestrating a petition in support of a criminal investigation of Goldman. It says it has 23,000 signatures and that 2,400 people have called their member of Congress, asking them to join Kaptur's push. They're doing this under the slogan "Too Big to Jail."

Here's the full letter from Kaptur and the 14 other Democrats:

The Honorable Eric Holder
United States Attorney General
U.S. Department of Justice
950 Pennsylvania Avenue, N.W.
Washington, DC 20530-0001

Dear Attorney General Holder:

The U.S. Securities and Exchange Commission (SEC) announced on Friday, April 16, 2010, that it had filed a securities fraud action against the Wall Street company Goldman Sachs & Co (GS & Co.) and one of its employees for making materially misleading statements and omissions in connection with a synthetic collateralized debt obligation ("CDO") that GS & Co. structured and marketed to investors. The SEC alleges that:

  1. This synthetic CDO, ABACUS 2007- AC1, was tied to the performance of sub-prime residential mortgage-backed securities ("RMBS") and was structured and marketed by GS & Co. in early 2007 when the United States housing market and related securities were beginning to show signs of distress. Synthetic CDOs like ABACUS 2007-AC1 contributed to the recent financial crisis by magnifying losses associated with the downturn in the United States housing market.
  2. GS & Co. marketing materials for ABACUS 2007-AC1 - including the term sheet, flip book and offering memorandum for the CDO - all represented that the reference portfolio of RMBS underlying the CDO was selected by ACA Management with experience analyzing credit risk in RMBS. Undisclosed in the marketing materials and unbeknownst to investors, a large hedge fund, Paulson & Co. Inc. ("Paulson"), with economic interests directly adverse to investors in the ABACUS 2007-AC1 CDO, played a significant role in the portfolio selection process. After participating in the selection of the reference portfolio, Paulson effectively shorted the RMBS portfolio it helped select by entering into credit default swaps ("CDS") with GS & Co. to buy protection on specific layers of the ABACUS 2007-AC1 capital structure.
  3. In sum, GS & Co. arranged a transaction at Paulson's request in which Paulson heavily influenced the selection of the portfolio to suit its economic interests, but failed to disclose to investors, as part of the description of the portfolio selection process contained in the marketing materials used to promote the transaction, Paulson's role in the portfolio selection process or its adverse economic interests.
As the SEC notes, financial manipulations such as this contributed to the near collapse of the U.S. financial system and cost American taxpayers hundreds of billions of dollars. On the face of the SEC filing, criminal fraud on a historic scale seems to have occurred in this instance. As an ever growing mountain of evidence reveals, this case is neither unique nor isolated.

If both global and domestic confidence in the integrity of the U.S. financial system is to be regained, there must be confidence that criminal acts will be vigorously pursued and perpetrators punished.

While the SEC lacks the authority to act beyond civil actions, the U.S. Department of Justice (DOJ) has the power to file criminal actions against those who commit financial fraud. We ask assurance from you that the U.S. Department of Justice is closely looking at this case and similar cases to further investigate and prosecute the criminals involved in this, and other financially fraudulent acts. Furthermore, if the DOJ is not currently looking into this particular case, we respectfully ask you to ensure that the U.S. Department of Justice immediately open a case on this matter and investigate it with the full authority and power that your agency holds. The American people both demand and deserve justice in the matter of Wall Street banks whom the American taxpayers bailed out, only to see unemployment and housing foreclosures rise.

This matter is of deep importance to us. As you may know, H.R. 3995, the Financial Crisis of 2008 Criminal Investigation and Prosecution Act, has been introduced, which authorizes you to hire more prosecutors, Director Mueller of the Federal Bureau of Investigation to hire 1,000 more agent as well as additional forensic experts, and Chair Mary Shapiro of the U.S. Securities and Exchange Commission to hire more investigators to continue to pursue justice and route out the criminals in our financial system. Part of financial regulatory reform should include removing the criminals and crafting a system that supports those who follow the law.

We in Congress stand ready to support you in protecting the American taxpayers from financial crimes such as the fraud that the U.S. Securities and Exchange Commission has charged Goldman Sachs with committing. We ask that you take up this case, and others, to pursue justice for the American people, to put criminals in jail, and seek to restore the integrity of our nation's financial system.

Sincerely,

*Bennet is the brother of The Atlantic's editor, James Bennet.

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