UK to join Goldman Sachs investigation

18th Apr 2010 17:46

Following on from Friday's shock decision by the US Securities and Exchange Commission (SEC) to sue Goldman Sachs for fraud the SEC's UK and German counterparts are also investigating the US banking giant's activities.Part-nationalised bank Royal Bank of Scotland (RBS) is said to be one of the big losers from the activities which the SEC is investigating, with press reports suggesting that RBS lost £550m as a result of being sold collateralised debt obligations (CDOs) by the Wall Street banking firm.The SEC's case against Goldman Sachs and a vice president at the firm, Fabrice Tourre, is that the bank sold investors a product linked to the performance of a parcel of mortgages but neglected to tell them that Paulson, a hedge fund that was shorting the product, had participated in the design of the CDO.Goldman Sachs has denied the allegations and said the lawsuit hinged on a "single transaction in the face of an extensive record which establishes that the accusations are unfounded in law and fact."In what is likely to be a very complicated case involving the arcane activities of Wall Street's major players, the SEC will seek to prove Paulson's role in the design of the product and argue that Goldman Sachs had an obligation to tell its clients of Paulson's position on the debt instrument.The SEC's move sent Goldman Sachs's share price plunging by just under 13% on Friday.Britain's Prime Minister, Gordon Brown, called on the Financial Services Authority (FSA) on Sunday to investigate Goldman Sachs, saying he was shocked at what he termed the "moral bankruptcy" of the behaviour which the SEC alleges took place.Germany's financial regulator, Bafin, has also asked the SEC for details on the case, a spokesman for Germany's Chancellor Angela Merkel said.