Goldman Sachs targeted as 'Jaws' joins battle over banking crash

Lawyer Jacob 'Jaws' Zamansky has filed a lawsuit against Goldman Sachs. Photograph: John Rizzo/Bloomberg News

He is known as "Jaws", the perfect nickname for a lawyer entangled in a lawsuit filed against a massive investment bank that has been dubbed a "vampire squid" by its critics. But Jacob Zamansky, a renowned Wall Street defender of the little guy, with a record of extracting large settlements from giant firms, does not fear the tough reputation ofGoldman Sachs.

Indeed, he is happy to be helping on a class-action lawsuit against the bank taken out on behalf of a group of shareholders seeking millions of dollars in damages for alleged illegal behaviour. "Goldman misled these investors. So they came to me," Zamansky said.

However, Zamansky's lawsuit is just one of a swarm of legal problems that surround Goldman, whose name once typified blue-blooded banker wealth but now attracts a legion of critics who see it as a byword for out-of-control greed.

Then news broke that Goldman's chief executive, Lloyd Blankfein, had appointed his own lawyer, in the shape of top criminal defence attorney Reid Weingarten. The firm insisted that such a step was merely routine, but some of the bank's detractors saw it as a sign that criminal charges might be edging closer to Goldman and its senior staff. What is beyond doubt is that the bank is facing choppy legal waters due to its actions around the mortgage industry before and during the financial crisis and the bursting of the house price bubble.

The firm agreed last year to a $550m (£336m) settlement in a suit alleging that it misled investors in one sub-prime mortgage investment vehicle. But that could be just the beginning. Goldman has also revealed recently that it could eventually pay out as much as $3.4bn because of other expected legal cases.

This is where suits such as Zamansky's come in. The class action is grouping together a number of shareholders who say the firm's activities around one now notorious security, known as Abacus, have caused them massive losses. But Zamansky says the issue has a wider symbolism for a nation with a moribund economy that many people blame on the actions of big banks. "This gets to the core of the crisis … their business model was against the law," said Zamansky.

Goldman is fiercely contesting the claims and has repeatedly said it did nothing wrong. But what might really worry its top executives is not the rising tide of private lawsuits but the possibility that the US department of justice may be laying criminal charges. The firm was hit with a subpoena in June, asking for documents related to the mortgage security industry and other topics. That follows on from Goldman's starring role – along with other major banks – in a Senate report that detailed numerous examples of bad behaviour as it sought to investigate the origins of the financial crisis. The report found many banks guilty of privately trash-talking the mortgage debt they were happily selling. There have also been allegations, robustly denied by Goldman, that Blankfein may have perjured himself during testimony to the Senate.

The market's sensitivity to the issue was shown by the dramatic fall in Goldman's share price when news broke that Blankfein had hired Weingarten. Indeed, in the space of a few hours more than $2.5bn was wiped off the firm's market value as traders digested the news, although the price later recovered. The instant reaction is perhaps partly explained by looking at some of Weingarten's previous clients, who include executives involved in scandals like Tyco and Enron.

However, Goldman insisted that Weingarten's appointment was routine – and some observers agree. "It was not big news," said Columbia University law professor John Coffee.

Others were less sure. They pointed to the fact that Weingarten is best known for his work as a defence lawyer in white-collar criminal cases and in some ways was an unusual choice for Blankfein if he was not expecting trouble. They also point to Weingarten's close ties to the department of justice, where he has previously worked in its public integrity section.

Whatever happens legally, Goldman's supporters will take heart from the fact that other top banking figures who played key roles during the financial crisis – such as Lehman head Dick Fuld and John Thain of Merrill Lynch – also hired their own lawyers, but have yet to face any criminal charges.

What is more clear is the intense damage done to Goldman's reputation in the years since the crisis. Even as the bank's bottom line has recovered and it has resumed paying out handsome bonuses worth billions of dollars to its staff, it still has a huge image problem. "Their image has been greatly tarnished. They were the best and the brightest, but all that has been called into question," said Zamansky.

Goldman-bashing is now practically a national sport among pundits, who question why banks have remained so wealthy and profitable, even as the country grapples with a devastated housing market and high unemployment.

Even the religious have got in on the action. A group of nuns called the Sisters of St Francis of Philadelphia led a high-profile campaign earlier this year over the huge amounts that Goldman executives were paying themselves. Now they are planning further meetings. "They have a business model, but we have a justice model," said Sister Nora Nash.

Yet many observers say the bank is as powerful and influential as ever. "It is still large. They have close allies throughout the administration and in Congress, and they are going to make a lot of campaign contributions in the coming election," said Baker. Indeed, Goldman's wealth is the subject of a popular mocking Twitter account. Called @gselevator, it purports to tweet the overheard comments of Goldman employees as they ride the company lifts. One recent update read: "Suit#1: Was that really an earthquake? Suit#2: No, I just dropped my wallet."

Perception is important in the world of finance and, with lawyers and the justice department circling, not many people at Goldman are laughing at the moment. "They have become the whipping boy," said Coffee.