Late Monday afternoon, after word broke on Reuters that Lloyd Blankfein, the chairman and CEO of Goldman Sachs Group Inc., had hired Reid Weingarten, the criminal defense attorney with an especially scary list of white-collar clients, Goldman's stock plunged and the firm went into damage control mode.
Goldman issued the following statement: “As is common in such situations, Mr. Blankfein and other individuals who were expected to be interviewed in connection with the Justice Department’s inquiry into certain matters raised in the PSI report, hired counsel at the outset.” (PSI refers to the Senate Permanent Subcommittee on Investigations.)
From his vacation lair on Long Island, Lucas Van Praag, Goldman's chief spokesman, explained that Blankfein's hiring of Weingarten was not especially noteworthy. "It's the legal equivalent of buying an insurance policy," he wrote in an e-mail. But at $2.6 billion lopped off Goldman's market value, it turned out to be a very expensive premium.
In the first hours of trading today, Goldman's shares have recovered a bit from Monday's big selloff. But the question remains: Why would investors drive Goldman's stock down to $106.51 on Monday, its lowest level since March 2009, during the depths of the market's plunge? All for hiring a lawyer?
Turns out, Blankfein actually hired Weingarten in May, when Senator Carl Levin, the Michigan Democrat who chairs the PSI, first recommended that Justice Department lawyers study whether Blankfein and other Goldman executives perjured themselves during their 11-hour testimony in April 2010 before Levin's panel.
It's fairly unusual for the CEO of a Wall Street firm to hire his own counsel -- suggesting that his and Goldman's interests may be diverging -- but it's not unique. Former Morgan Stanley CEO John Mack had his own counsel during an investigation into an insider-trading probe of Pequot Capital, where he once briefly worked.
It seems investors are simply jittery about Wall Street financial stocks, which is just as it should be. It's not the least bit clear whether Justice will bring a perjury case against Blankfein. Such charges are notoriously difficult to prove, especially against a former lawyer and Harvard Law School graduate like Blankfein.
What is clear is that Goldman Sachs has entered a brave new world of uncertainty about how to make money when trading opportunities are reduced and in disfavor, and the investment-banking fee well seems dry as a bone. My bet: That is what investors were really reacting to, not the old news that Blankfein had hired a defense lawyer.
(William Cohan is a Bloomberg View columnist.)