Formal investigation into Goldman

Lloyd Blankfein

The Financial Services Authority has opened a formal investigation into Goldman Sachs, after US authorities sued the bank for fraud last week. The move could further escalate allegations of fraud against the US investment bank.

The UK financial watchdog said this morning that it has decided to start a "formal enforcement investigation" into Goldman Sachs International, its London-based business, after an initial review of the case.

The FSA's probe comes after America's Securities and Exchange Commission (SEC) shocked the market last Friday by accusing Goldman and one of its vice presidents, Fabrice Tourre of fraudulently selling bad loans to investors in a deal which lost $1 billion.

The FSA, which is responsible for the UK financial market, would not say why it has also started a formal investigation.

In its statement, the regulator says: "Following preliminary investigations the FSA has decided to commence a formal enforcement investigation into Goldman Sachs International in relation to recent SEC allegations. ‬‪The FSA will be liaising closely with the SEC in this review.‬‪"

It is unusual for the FSA to announce the beginning of a formal investigation. It is understood that the investigation process typically takes months, if not years, the BBC report.

The enforcement division of the FSA will now have powers to demand that Goldman provide it with documentation such as records of transactions and records of telephone calls.

If the watchdog finds Goldman at fault, it could impose a fine on the bank.

Goldman responsibility

Goldman has been drawn into a fresh controversy as lawyers demanded to know whether it was partly responsible for triggering Lehman Brothers' downfall by shorting its rival's shares, the British paper The Telegraph reports.

The bank has been ordered to hand over documents to Lehman's Bryan Marsal, the man responsible for winding up the bank's affairs and repaying creditors. Goldman was named in the court filing along with four other firms, including hedge funds SAC Capital and Citadel. Goldman declined to comment on the Lehman case.

In a further potential legal case, it emerged that AIG is considering suing Goldman over about $2 billion of losses it incurred from past derivatives instruments.

Lloyd Blankfein, the bank's chairman, has been attempting to boost staff morale ahead of today's first-quarter results, which are expected to show a profit of as much as $3.8 billion.

"The extensive media coverage on the SEC's complaint is certainly uncomfortable, but given the anger directed at financial services, not completely surprising," he said in one voicemail left on an employee's phone.

Undetermined period of absence

Fabrice Tourre, the bond trader at the heart of the SEC's probe, has begun an undetermined period of absence. The bank maintained that while he has done "nothing wrong" and remains an employee, he had made a "personal decision to take a bit of time off."

Mr. Tourre, was working in Goldman's New York office in 2007 when he is accused by the SEC of creating a complex debt product based on subprime mortgages that he then misled investors about.

President Barack Obama is to make a landmark speech on financial regulatory reform which is expected to draw on Goldman's current problems.

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