The U.S. Federal Reserve is probing whether Goldman Sachs Group Inc’s consumer business had appropriate safeguards in place as the bank ramped up lending, the Wall Street Journal reported on Friday, citing people familiar with the matter.
Shares of the investment bank were down nearly 3% at $341.08 in afternoon trade.
The central bank is concerned the Wall Street giant did not have proper monitoring and control systems inside Marcus, its consumer unit, as it grew larger, the report said.
The probe, which grew out of a standard Fed review of the business in 2021 and intensified into an investigation last year, is also examining instances of customer harm and whether they were properly resolved, the report added.
“The Federal Reserve is our primary federal bank regulator and we do not comment on the accuracy or inaccuracy of matters relating to discussions with them,” a Goldman spokesperson told Reuters.
Bloomberg News reported in September that the bank’s Marcus unit was facing a Fed review.
The probe would add to troubles for Goldman, which is executing a strategic pivot that includes refocusing on its core trading and investment banking business after losing money in its consumer banking venture.
“Another investigation into the consumer business makes Goldman’s foray into consumer look even worse, and can reduce management credibility, particularly given so many statements about GS’ ability to manage risk and build best-in-class platforms,” said Mike Mayo, banking analyst at Wells Fargo, in a note.
“The investigation, along with poor disclosure and other regulatory investigations, will increase the risk associated with owning GS and its cost of capital.”
Goldman’s credit card business is also being investigated by the Consumer Financial Protection Bureau (CFPB), the bank disclosed last year.
Hedge Fund Investigations: Citadel Securities
Bloomberg confirmed in 2022 that Citadel Securities was one of the hedge funds under investigation by the Department of Justice.
Regulators took Morgan Stanely and several other hedge funds to court after several subpoenas were sent out earlier in the year.
Predatorial short selling strategies were exposed by the AMC and GME stock communities after the ‘meme stock’ frenzy fiasco in 2021.
Both these stocks’ share prices have been suppressed by dark pool trading, naked short selling, spoofing, and through OTC trading.
The hedge fund was being investigated after subpoenas were sent to numerous hedge funds and banks who might be connected.
Morgan Stanley and Goldman Sachs are two of the banks that were also ordered to court.
Among Citadel is a hedge fund by the name of Element according to the Bloomberg report.
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