Gordon Brown calls for Goldman Sachs investigation
Goldman Sachs faces the prospect of investigations in the UK and Germany after Gordon Brown said he was "shocked" at the "moral bankruptcy" alleged against the bank.
The Prime Minister called for a "special investigation" into Goldman's activities. It came as the bank prepares to pay out £3.5bn in bonuses and announce first-quarter profits of almost $4bn (£2.6bn) this week, in the face of a US investigation by the Securities and Exchange Commission (SEC) over securities fraud.
"This is probably one of the worst cases that we have seen," Mr Brown said. "There have been hundreds of millions of pounds that have been traded here and it looks as if people were misled about what happened. I want the Financial Services Authority [FSA] to investigate it immediately."
Mr Brown's comments are the latest twist to a drama which is likely to see Goldman come under ferocious political and regulatory scrutiny when it announces first-quarter results. Stock markets will also be braced for further falls this week as investors consider the repercussions of an investigation into the world's most profitable bank. Shares in Goldman – which denies the accusations, saying they have no basis in fact or in law – fell 13pc on Friday.
The FSA would not comment yesterday on whether it is investigating Goldman, but the bank is thought to have contacted the regulator on Friday after it was charged. Sources close to the situation say the FSA is assisting with the US investigation but stress the charges relate to activities that took place in America.
The FSA is under pressure to investigate Goldman because Royal Bank of Scotland, (RBS) the taxpayer-backed bank, was the biggest victim of the alleged fraud, losing $841m.
RBS is understood to be considering its options. The bank declined to comment.
German bank IKB, also bailed out by the taxpayer, lost $150m on the collateralised debt obligation (CDO). A German government spokesman said it will "make a request for information to the SEC" before considering "legal actions".
The SEC charges are also against a bond trader based in London, Fabrice Tourre. Goldman and Mr Tourre are accused of misleading investors by creating a subprime mortgage-backed CDO without informing investors that hedge fund Paulson & Co would be betting on its failure.
The FSA itself will also come under scrutiny this week as to why Mr Tourre was granted clearance to work in the UK in November 2008, following a transfer from Goldman's New York office, despite the SEC approaching Goldman months earlier about a potential probe into a CDO fraud. Sources close to the situation say Goldman did not tell the FSA about the investigation because the SEC had not said at that time it was specifically investigating Mr Tourre or the CDO in question, known as Abacus.
A Goldman spokesman, who would not comment on Mr Brown's criticism, said Mr Tourre had not been suspended and was free to come to work today because the bank believes he has done nothing wrong. However, it is not clear whether he will do so.