If the Justice Department decides to file criminal charges against Goldman Sachs (NYSE: GS), the charges perhaps will not be related to the Abacus deal that the SEC has chosen to fete. According to the Huffington Post, the Justice Department may focus instead on the infamous Timberwolf deal, which one Senator described memorably in a recent hearing as downright "shitty."

David Mapley, former independent director of an Australian hedge fund, says the fund collapsed after Goldman sold it $100 million of securities in the Timberwolf CDO (CDO news). He has been contacted by the prosecutors and expects to be interviewed. He says that the Timberwolf deal seemed to him "to be a stronger case as it involves allegations that Goldman bet against a deal it marketed to clients. In comparison, the Abacus case involves claims that Goldman failed to disclose that a short seller--Paulson & Co. hedge fund--helped select the assets in a CDO tied to subprime mortgages."

Mapley claims that Goldman sold Timberwolf securities to the fund at marked-up prices, while the firm's trading desk was shorting such CDOs. Goldman Sachs said it also lost many millions on the Timberwolf deal, but that may be because it couldn't get enough buyers to lay off its exposure and was caught on the wrong side. Some think a deferred prosecution agreement will be the most likely outcome. 

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