UK to probe Goldman Sachs

Investment bank Goldman Sachs is to be investigated in the UK after US authorities issued fraud claims against it, the City regulator said today.

The Financial Services Authority (FSA) said it would launch a “formal enforcement investigation” into Goldman in relation to the Securities and Exchange Commission allegations in the US.

British Prime Minister Gordon Brown has called for a special investigation into Goldman Sachs after reports that it is to rack up a bonus pot of £3.5bn (€4bn) for the first quarter and he accused the bank of “moral bankruptcy”.

Goldman is expected today to post a 50% hike in net income to around $2.6bn (€1.92bn) in results for the first three months of 2010.

The expected bumper results come just days after the fraud allegations emerged.

US regulators have launched a civil lawsuit against the investment bank.

The SEC alleges Goldman, which employs 5,500 people in the UK, failed to disclose that one of its clients helped create – and then bet against - sub-prime mortgage securities that Goldman sold to investors.

It claimed investors – including the Royal Bank of Scotland – lost $1bn (€740m) as a result of the alleged fraud, which Goldman has vigorously denied.

The case is the US government’s most significant legal action related to the mortgage meltdown that ignited the financial crisis and helped plunge the country into recession

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Goldman’s role as an adviser on debt issuance by the UK government, as well as other issues such as the return of Northern Rock to the private sector, has come under fire from the Liberal Democrats and Conservatives.

The FSA said it would “be liaising closely with the SEC” in its review of Goldman.

Staff at the bank, which paid out $16.2bn (€12bn) in compensation and benefits for 2009, will not receive the latest bonanza until next year.

The banker at the centre of the fraud claims, Fabrice Tourre, is also reportedly set to share in the bonus pool.

Chief executive Lloyd Blankfein notoriously said last year the bank was “doing God’s work”, a view not replicated by Rolling Stone magazine, which described the bank as a “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money”.