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The Financial Services Authority today said it had launched an investigation into the “circumstances” surrounding the fraud charges made against Goldman Sachs with a view to seeing if there any implications for its London arm.
The City regulator had come under increasing pressure from all political parties to investigate Goldman after the Securities and Exchange Commission charged it with fraud on Friday night.
Goldman shares fell another 3% this evening after Friday's heavy losses. They retreated $5.19 to $155.51 amid concerns about litigation and reputational damage.
Prime Minister Gordon Brown specifically called on the FSA to investigate Goldman “immediately”.
“If people knew they were deliberately selling products that were worthless, or likely to be worthless, that is a breach of any of the codes of trust that banking should uphold," he said of the claims.
The regulator said: “As you would expect the FSA is investigating the circumstances of this case and whether there are any implications for the UK-regulated entities of Goldman Sachs. If there are, we will take appropriate action. We work closely with overseas regulators and will be co-operating fully with the SEC investigation.”
Sources close to the FSA pointed out that this statement does not mean it has launched a full-scale probe under the direction of its chief enforcer Margaret Cole. That will only happen if it finds enough evidence to implicate Goldman's London arm.
Adam Epstein, financial services litigation partner at law firm Mishcon de Reya, said: “The FSA may now really feel a need to prove itself. Historically, many in the market have seen it as the poor cousin of the SEC.
While its enforcement has recently become much more aggressive, it may feel the need to up the ante as a result of this. That's especially true as the FSA is under threat if the Conservatives win the election.”
Goldman again today rejected all the allegations made against by the SEC and said it would “vigorously contest” the action.
Fabrice Tourre, the 31-year-old Goldman vice-president at the centre of the alleged fraud, was not at work in Goldman's Fleet Street offices today. The French-born maths genius moved from New York to London in late 2008, a year after he had set up Abacus, the vehicle which hedge fund Paulson used to bet against residential mortgage-backed securities.
A spokesman for Goldman said: “I understand he has not come in today and that was his personal decision. He is not suspended and I would expect him to come back to work at some stage. But it's quite understandable that he might want to take some time off just now.”
Bank share prices across Europe were hit sharply following the SEC charges, which came after most continental markets had closed on Friday.
Deutsche Bank and UBS were among the biggest fallers amid fears that the fraud charges against Goldman could lead to much tougher regulation.
Finance ministers from the G20 group of leading economies are due to meet in Washington this week. They are expected to review what progress has been made in producing a co-ordinated international effort to police banks more toughly.
Reader views (7)
Banking fraud and government weakness and stupidity is the causes of the recession.
Can you imagine going to a bank to secure a business loan whereby on your balance sheet highlights not only vast debt, but shows your customers are not paying back debts based on contracts - furthemore, your cashflow forecast shows that you have continued to lend to your customers and pay-out bonuses to your staff for completing these transaction. I am sure that a bank will draw your attention to these alarm-ringing events taht form your business plan. Similarly, this is what reflected the banks balance sheets. Even though the balance sheet clearly identified excessive lending and excessive non-payments, bankers continued to lend and benefit from excessive renumerations from it. So, we have knowledge and accountability. But somehow, in teh eyes of teh UK government this does not amaount to FRAUD - or a police investigation into alledged fraud. These bankers have gone untouched - but for one scapegoat named Fred Goodwin that the press has hounded. Bonuses was not the cause of the recession, Fraudulent activity by bankers was - caused by the banking abuse of Gordon Browns weak-soft touch regulation of the financial regulation.
It is shameful how government still fails to do what is right. How can a Political system move forward and gain trust if such matters fauil to be dealt with correctly. If it were you or I who did such an act, immediately we will be arrested. Right!?
- IAS, London, 10/12/2010 15:32
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Goldman Sachs will get away with it, they have the money to hire the best - and the brains to bury the rest.
It will be more millions wasted at the end of it.
The institutions control the governments - especially in the current climate.
- Ancient Wisdom, London, England, 19/04/2010 18:57
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The FSA finally starts doing something it should have done 3 years ago.
What a useless rabble.
What is it? "Box-ticking beaurocrats"
- Anglo, Sussex England, 19/04/2010 16:52
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Some commentators says that the 'immediate financial implications of the SEC's fraud charge are tiny'. I believe that this is not just wrong, but misses the extraordinary threat to Goldman Sachs, and indeed to the whole banking industry should Goldman Sachs be found guilty of fraud. Goldman Sachs could lose its Banking Licence, not only in the States but all over the world. This would effectively mean that Goldman Sachs would cease to trade, pay out its shareholders and lenders and disintegrate while staff find roles elsewhere. A fine is the least of Goldman Sachs worries. Is this not so? If Goldman Sachs does lose its Banking license, other banks may well collapse in sympathy.
Yours Sincerely,
Francis Salvesen
BSC (ECON) MBA MSI
- Francis Salvesen, London UK, 19/04/2010 15:40
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Goldman Sachs was the principal initiator of these exoctic derivitives using rating agencies to give AAA ratings to what were very dubious bonds. Brown set up the FSA which was useless as they had no comprehension of what was happening. This brought the Banking system to near collapse and caused the recession.
- Tojo, Hythe Kent, 19/04/2010 14:57
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It's time we put an end to casino-capitalism. All of these investment banks, and hedge-funds too, need to be thoroughly investigated and their fraudulent market-rigging activities exposed. The rapacious senior traders and managers who have been, for so long, creaming off the wealth of the world should be brought before the courts and, where appropriate, heavily fined and thrown in jail. we need an economy in which productive work is rewarded; not the ruthless machinations of financial parasites.
- Richard Kennard, Welling, 19/04/2010 13:56
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i thought Brown was responsible for vetting banks. Now he has apologized for failing to do so , will he stand down.
- ALAN,, ENGLAND. If only Democrats would rejoin Labour leaving Liberals alone, 19/04/2010 13:07
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