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AP source: Criminal probe of Goldman Sachs under way

WASHINGTON - 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 person with knowledge of the probe said Thursday.

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

The SEC earlier this month filed civil fraud charges against Goldman and a trader in connection with the transactions, alleging it misled investors by failing to tell them the subprime mortgage securities had been chosen with help from a Goldman hedge fund client that was betting the investments would fail.

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

News of the action came a day after a group of 62 House lawmakers, including Judiciary Committee chairman John Conyers (D-Mich.), asked Justice to conduct a criminal probe of Goldman.

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 cooperate 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 lawmakers in an election year, in the wake of the financial crisis that plunged the country into the most severe recession since the Great Depression of the 1930s.

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