/ 20 April 2010

Goldman Sachs faces UK probe as net widens

Britain launched a probe into United States bank Goldman Sachs on Tuesday linked to US fraud charges that the Wall Street giant misled investors, but the bank denied any fault while promising to cooperate.

As the bank revealed surging first-quarter profits in New York, London’s Financial Services Authority (FSA) watchdog said it would probe fraud charges announced last week by the US Securities and Exchange Commission (SEC).

The two investigations concern complex instruments and trading positions related to the high-risk end of the US mortgage market, which triggered the global financial crisis.

“Following preliminary investigations, the FSA has decided to commence a formal enforcement investigation into Goldman Sachs International in relation to recent SEC allegations,” Britain’s financial regulator said.

“The FSA will be liaising closely with the SEC in this review,” it added in a brief statement.

Goldman, which employs about 5 500 staff in London, undertook to cooperate with the British probe following US fraud charges, which it has again dismissed as “unfounded”.

The bank said in a statement emailed to Agence France-Presse: “We believe the SEC’s charges are completely unfounded in law and fact, and look forward to cooperating with the FSA.”

‘Moral bankruptcy’
Last week the SEC filed a civil suit against Goldman, alleging it allowed a leading hedge fund to put together a product for investors, which the fund was at the same time betting against.

Hours after the FSA announcement, the embattled US investment firm posted soaring first-quarter profits of $3,46-billion.

The company has vigorously denied any fraud as it seeks to defend its reputation as Wall Street’s most stable finance house.

But Tuesday’s results threaten to be overshadowed by the probes in London and New York.

“The FSA involvement suggests that this story has legs, and while it will be a long time before there is any resolution, it will certainly give US legislators a pile of regulatory ammunition,” said GFT analyst David Morrison.

He also warned: “If the net widens to cover other financial institutions and other investment products, then the implications may not yet be priced into equity markets.”

The British probe also comes just days after Prime Minister Gordon Brown blasted Goldman Sachs over what he called its “moral bankruptcy”. — AFP