Wednesday 21 March 2018

Goldman Sachs London units face probe

Caroline Binham

Goldman Sachs Group’s London units will be formally investigated by Britain’s financial regulator after US authorities sued the bank for fraud.

The Financial Services Authority said in a statement today that it will begin a formal probe after the US Securities and Exchange Commission filed a lawsuit over Goldman Sachs’s marketing of a collateralized debt obligation.

The FSA said yesterday it was reviewing whether a full investigation into the New York-based bank was warranted.

“Following preliminary investigations, the Financial Services Authority has decided to commence a formal enforcement investigation into Goldman Sachs International in relation to recent SEC allegations,” the FSA said in an emailed statement. “The FSA will be liaising closely with the SEC.”

British Prime Minister Gordon Brown called on the FSA, which he created in 1997, to investigate Goldman Sachs two days ago, accusing employees of the bank of “moral bankruptcy.”

The bank may be fined or individuals banned if the FSA finds a breach of its rules. A Goldman Sachs vice president named in the SEC case, Fabrice Tourre, works at the bank’s London office.

Goldman Sachs will cooperate with the FSA’s investigation, the bank said in an emailed statement today.

The bank has previously denied wrongdoing and said it will fight the SEC’s case because it is “completely unfounded in law and fact.”

Tourre on leave

Tourre has been placed on paid leave until an unspecified date, a Goldman Sachs spokeswoman said today. Pamela Chepiga, Tourre’s lawyer at Allen & Overy LLP in New York, didn’t immediately return a call seeking comment.

It is too soon to tell if there will be a criminal investigation in the case, FSA spokeswoman Heidi Ashley said in a telephone interview.

The regulator can prosecute individuals if it determines they made false or misleading statements. The crime carries a maximum seven-year sentence.

Chancellor of the Exchequer Alistair Darling said today that regulators need to take urgent steps and that the charges against Goldman Sachs had “huge ramifications.”

Darling, who described the securities Goldman sold as “a bag of pus,” said the government would look at changing the law if necessary.

“It’s absolutely paramount that these bad practices are stamped out,” he said. “It can’t be right that some have made so much money at the expense of others simply because all of the information was not revealed.”

Goldman Sachs earnings

Goldman Sachs said today net income rose 91pc to $3.46bn in the three months through March, from $1.81bn a year earlier.

Goldman Sachs fell 13pc on April 16, the day the SEC suit was filed.

The FSA will need to show that either individuals or companies based in the UK were involved in wrongdoing to take action, lawyers said yesterday when the preliminary inquiry was announced.

While Tourre works in the bank’s London office, he moved there in November 2008, FSA records show.

The SEC is examining conduct before that date. Tourre, 31, is still registered with the FSA.

The German and French securities regulators also said yesterday that they would review whether to take action.

German and British banks both lost money because of the fraud, according to the SEC suit.

The Royal Bank of Scotland Group Plc unwound a position in Abacus bought by ABN Amro, which it took over in 2007, by paying Goldman $840.9m, the SEC said.

Germany’s IKB Deutsche Industriebank AG lost nearly all of its $150m investment in Abacus, according to the lawsuit.


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