UK regulator launches Goldman probe

UK regulator launches Goldman probe
By Brooke Masters and Kiran Stacey
Copyright The Financial Times Limited 2010
Published: April 20 2010 10:23 | Last updated: April 20 2010 11:39
http://www.ft.com/cms/s/0/32784f0a-4c4c-11df-8fe1-00144feab49a.html


UK regulators have launched a formal investigation of Goldman Sach’s London office in the wake of the US decision to file civil fraud charges against the global bank.

The Financial Services Authority said on Tuesday it would work closely with the US Securities and Exchange Commission, which has charged Goldman with misleading investors in a 2007 synthetic collateral debt obligation known as Abacus. The SEC alleges that Goldman failed to disclose the role played by bearish hedge fund Paulson & Co in selecting the mortgages whose results the derivative transaction was supposed to mimic.

Goldman denies wrongdoing and is fighting the charges. It is also standing by Fabrice Tourre, the 31-year-old vice-president who has been personally charged with fraud. It has put him on paid leave, rather than suspending him, and has taken him off the FSA register of “approved persons” to give him time to deal with the investigation and his own defence.

The Abacus transaction took place in New York but Mr Tourre now works in London.

The UK regulator will be looking at him and whether he can return to work as an “approved person”. But the FSA’s investigation could well extend into a broader examination of Goldman’s structured products business, lawyers said.

Goldman said in a statement: “We believe the SEC’s charges are completely unfounded in law and fact, and look forward to co-operating with the FSA.”

In recent years, UK authorities have established a regular pattern of jumping on board US scandals with their own investigations, with limited results. A trumpeted probe of the UK arm of Bernard Madoff’s group did not result in charges, and the Serious Fraud Office’s public efforts in the Allen Stanford case so far have been largely limited to freezing and turning over assets.

Bafin, the German financial regulator, and the Autorité des Marchés Financiers, the French regulator, is also reviewing the Goldman allegations to see if a local probe is warranted.

The FSA investigation came as the UK Labour party refused to back calls for the government to stop using Goldman as an adviser.

Nick Clegg, the Liberal Democrat leader, responded to the news by calling on the government not to use Goldman as an adviser until the allegations had been properly investigated.

“The allegations about Goldman Sachs are yet another reminder of how reckless and greedy the global banking industry had become,” Mr Clegg said.

“We believe that Goldman Sachs should now be suspended in its role as one of the advisers to the government until these allegations are properly looked into.”

Goldman is currently on a rota of banks that advise the Treasury on debt issuance, and may become involved in deals to sell government assets, such as state-owned banks, the Tote bookmaker and the Channel Tunnel rail link.

Mr Clegg made his comments while outlining the Lib Dems' proposed banking reforms, which include breaking up retail and investment banks, implementing a 10 per cent levy on bank profits and setting lending targets for government-owned banks.

But Lord Mandelson, the business secretary, refused to back calls to suspend Goldman. “We have got to be much more fundamental than that and look at the whole system of constituting and regulating banks,” he told the BBC.

“We need international agreement. So when the Conservatives and Nick Clegg say, ‘Let’s apply rules to our banks,’ they are overlooking the fact that banks are international.”

Lord Mandelson’s attack on Mr Clegg demonstrated a new determination on the part of both major parties to tackle the threat of the Lib Dems, whose sharp rise in the polls had slipped only slightly in fresh figures in The Sun newspaper on Tuesday.

On Monday night the Conservatives hastily axed a party political broadcast attacking Labour in order to screen one trying to regain the “change” agenda from the resurgent third party.

Meanwhile, Lord Mandelson admitted that the Lib Dems now posed a serious threat to his own party.

“[Nick Clegg] has appealed to a lot of people who feel that Labour has had a good innings and that it is someone else’s turn, but who have looked at David Cameron’s Tories and balked at them becoming the government.”

But Mr Clegg warned his own party against becoming complacent about their popularity. “There’s a great deal of fluidity around. What goes up can do down,” he warned. “What’s happening now will seem very different next week, just as last week felt very different to this week. I don’t think anything is cast in stone.”