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A financial professional works in the Goldman Sachs booth on the floor of the New York Stock Exchange April 16, 2010 in New York City. Goldman Sachs was charged with fraud by the Securities and Exchange Commission over its marketing of a subprime mortgage product, sending its stock price sharply lower.

Chris Hondros/(Photo by Chris Hondros/Getty Images)

The Wall Street Journal's report on Friday that federal prosecutors are considering a criminal investigation of Goldman Sachs Group Inc. is having a predictable impact on the financial firm's stock.

The decline comes as the stock appeared to be finding some stability. After the Securities and Exchange Commission announced that it was filing civil charges, earlier this month, the stock fell about 17 per cent over the next several trading days. It then rebounded about 5 per cent on the premise that a civil charge probably wasn't so bad in the longer term.

A criminal investigation, though, is another matter. The Wall Street Journal's Market Beat reported that analysts at Standard & Poor's downgraded the stock to a "sell" from a "hold", and chopped their target price to $140 (U.S.) - a $40 haircut.

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According to Bloomberg, analysts have stood by Goldman Sachs throughout most of this ordeal, which makes the S&P downgrade really stick out. Among the 28 analysts who have recommendations on the stock, 20 have a "buy" recommendation and eight have a "hold".

S&P's reasoning (via Market Beat): "The Wall Street Journal published an unconfirmed report suggesting that federal prosecutors are investigating whether the firm or its employees committed securities fraud in its mortgage trading business. Though traditionally difficult to prove, we think the risk of a formal securities fraud charge, on top of the SEC fraud charge and pending legislation to reshape the financial industry, further muddies Goldman's outlook. We are trimming our target price $40 to $140, 1.2-times projected tangible book value, in line with peers."

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About the Author
Investing Reporter

David Berman has been writing about business and investing since 1995. He has written for a number of magazines, including Canadian Business and MoneySense. He worked at the Financial Post as an investing writer and daily columnist before moving to the Globe and Mail in 2008. More

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