The London units of Goldman Sachs Group will be formally investigated by Britain’s financial regulator after U.S. authorities sued the bank for fraud.
The U.K.’s Financial Services Authority said in a statement Tuesday that it will begin a formal probe after the SEC filed a lawsuit over Goldman Sachs’ marketing of a collateralized debt obligation.
Prime Minister Gordon Brown called on the FSA to investigate Goldman Sachs, accusing employees of the bank of “moral bankruptcy.” The bank may be fined or individuals banned if the FSA finds a breach of its rules. A Goldman Sachs vice president named in the SEC case, Fabrice Tourre, works at the bank’s London office.
Goldman Sachs will cooperate with the FSA’s investigation, the bank said in an e-mailed statement. The bank has previously denied wrongdoing and said it will fight the SEC’s case because it is “completely unfounded in law and fact.”
Mr. Tourre has been placed on paid leave until an unspecified date, a Goldman Sachs spokeswoman said Tuesday. Pamela Chepiga, Mr. Tourre’s lawyer at Allen & Overy, didn’t immediately return a call seeking comment.
It is too soon to tell whether there will be a criminal investigation in the case, FSA spokeswoman Heidi Ashley said in a telephone interview. The regulator can prosecute individuals if it determines they made false or misleading statements. The crime carries a maximum seven-year sentence.
The SEC said that in early 2007, as the U.S. housing market teetered, Goldman Sachs created and sold a CDO linked to subprime mortgages without disclosing that hedge fund Paulson & Co. helped pick the underlying securities and bet against the vehicle, known as Abacus 2007-AC1. The hedge fund wasn’t sued by the SEC.