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British FSA launches probe into Goldman ops: Report

business Updated: Apr 18, 2010 14:43 IST

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The British financial regulator FSA has started a probe into the London operations of Goldman Sachs, following the charges of fraud slapped by the US markets watchdog against the Wall Street giant.

The Financial Services Authority (FSA) "has launched a probe into the London operations of Goldman Sachs after shock claims that the giant international bank orchestrated a $1 billion (650 million pounds) fraud against investors," according to the The Sunday Times.

According to the publication, investigators from the FSA are liaising with their American counterparts at the Securities and Exchange Commission (SEC).

The SEC on Friday charged Goldman Sachs with defrauding and causing a loss of over USD 1 billion to investors by misrepresenting facts about a financial product tied to sub-prime mortgages. Charges have also been slapped against one of Goldman Sachs vice-presidents Fabrice Tourre.

The Sunday Times reported that Tourre has worked at the bank's London headquarters since late 2008. "It is understood that the FSA is examining trades similar to the transaction that prompted the legal challenge from the American regulator," the publication noted.

Going by the report, British banking major Royal Bank of Scotland was the biggest victim of the alleged fraud, losing $840 million. "The bank (RBS) is believed to be considering legal action against Goldman, which vehemently denies the fraud allegations, claiming the SEC's complaint is unfounded in law and fact," it added.

"Goldman claims it lost money on the transaction. It also denies the SEC allegations that it gave favourable treatment to John Paulson, a billionaire hedge fund manager," the report pointed out. As per the report, some believe that Tourre has been made a scapegoat.

Quoting a senior hedge-fund source, the publication said, "with all of the guys inside the Goldman credit engine, to point the finger at some French (origin) vice-president is as credible as blaming the collapse of RBS on one of its tellers."

The SEC charges are related to the sale of complex bonds, whose fortunes hinged on the US sub-prime mortgages. Sub-prime mortgages, where chances of defaults are high, were one of primary causes for the global financial crisis.