UK investigates Goldman Sachs

Bank faces fraud allegations as it reports a surge in first-quarter earnings.

    Goldman Sachs described the fraud allegations
    as "unfounded in law and fact" [AFP]

    The London-headquartered Goldman Sachs International, a principal subsidiary of Goldman Sachs Group Inc., pledged to co-operate with the British investigation following the US fraud charges which it again dismissed as "unfounded".

    "We believe the SEC's charges are completely unfounded in law and fact, and look forward to co-operating with the FSA [Financial Services Authority]," the bank said in a statement.

    FSA said it would liaise closely with the SEC.

    Regulating banks

    Peter Mandelson, the British business minister, said on BBC Radio: "We have got to look at the whole system of constituting and regulating banks.

    "We need a system of regulation, a system of levying banks, which is internationally applied."

    British interest in the case is likely to focus on the Royal Bank of Scotland (RBS), which paid $841 million to Goldman Sachs in 2007 to unwind its position in a fund acquired in the takeover of Dutch bank ABN Amro, according to the complaint filed in the US.

    The government holds an 84 per cent stake in RBS, which nearly collapsed in large part because of its leadership of the consortium which took over the Dutch bank.

    Fabrice Tourre, a Goldman Sachs vice-president who was named in the SEC lawsuit, was promoted and moved to the bank's London office to become executive director of Goldman Sachs International at the end of 2008.

    The bank said on Tuesday that Tourre  is taking a break from his current position.

    "It is voluntary. He decided to take some time off," Michael Duvally, a Goldman Sachs spokesman, said.

    Government pressure

    The British investigation follows pressure from Gordon Brown, the prime minister, who expressed shock over weekend reports that Goldman still intended to pay out several billion dollars in bonuses despite the US fraud charges.

    The bank confirmed on Tuesday as it announced quarterly results in New York that it
    set aside $5.5bn in the first three months of the year to pay employee salaries and bonuses, up 17 per cent from last year.

    Brown talked about "moral bankruptcy", saying the activities of banks was "still an issue".

    "They are a risk to the economy,'' he said. "We have got to make sure they behave in a proper way."

    Brown is facing a parliamentary election in the coming weeks in which his handling of the economy and public anger over the actions of the banks are major issues.

    SOURCE: Agencies


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