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Wall Street giant Goldman Sachs fined £20m by UK's FSA

Category: Business

Published: 8th Sep 2010 20:47:22

Wall Street giant Goldman Sachs has been fined £20m ($31m) by the UK City regulator, the Financial Services Authority, the BBC has learned.

The fine is for failing to tell the FSA it was under investigation for fraud by the US financial watchdog this summer.

In July, Goldman settled the fraud charge with the Securities and Exchange Committee by paying $550m (£356m).

The £20m is one of the heaviest fines ever imposed by the FSA, said the BBC's business editor Robert Peston.

I can reveal that Goldman Sachs has been fined around £20m by the Financial Services Authority for failing to tell the City regulator that it was being investigated by the SEC for alleged fraud over the way it sold a subprime mortgage investment.

Goldman also failed to tell the FSA that Fabrice Tourre, the executive who created the relevant mortgage product, was under investigation: this was relevant because Mr Tourre transferred from the US to London, and therefore had to be authorised by the FSA.

The FSA accused Goldman of failing to have the necessary systems for keeping it informed of investigations by other regulators. Goldman has admitted that it made a mistake.

I understand that Goldman would have been fined more, but received a discount for early settlement.

The FSA announced in April it was investigating Goldman, but never disclosed why it was doing so.

The £20m is one of the heaviest fines ever imposed by the FSA.

In July, Goldman settled the fraud charge with the SEC, agreeing to pay $550m.

The mortgage product at the centre of the storm was a collateralised debt obligation called ABACUS 2007-ACI.

US bank Goldman Sachs has agreed to pay $550m (£356m) to settle civil fraud charges of misleading investors.

The charges concerned Goldman's marketing of mortgage investments as the US housing market faltered.

US finance watchdog the Securities and Exchange Commission said it was the biggest fine for a bank in its history.

The UK's Royal Bank of Scotland, which is now 84% owned by the UK taxpayer and lost about $840m in investments, will receive $100m compensation.

RBS has indicated that it may sue Goldman for the rest of the money it lost, saying that it would "carefully consider all of its options".

German bank IKB Deutsche Industriebank will receive $150m of the SEC fine, meaning it will recoup all of its losses on the Abacus deal that was the subject of the SEC's investigation.

This is despite the fact that RBS's investment in Abacus actually ranked senior to IKB's investment - meaning that RBS's investment was supposed to be safer.

The remaining $300m will go to the US Treasury.

Terms of the settlement are subject to approval by a federal judge.

The SEC said Goldman had acknowledged that marketing material contained "incomplete information".

In a statement, Goldman did not admit legal wrongdoing but said the move was "the right outcome for our firm, our shareholders and our clients".

Despite the record fine, Goldman shares rose by 4.5%, reflecting the fact that many analysts felt the firm had got off lightly.

"They pay $550 million and they get an $800 million pop in their stock price... they got off easy," said Kevin Caron at Stifel, Nicolaus & Co.

Goldman made a profit of $3.5bn in the first three months of this year.

In April, the SEC charged Goldman with failing to disclose "vital information" that one of its clients, Paulson & Co, helped to choose which securities were packaged into a mortgage portfolio that was then sold to investors in 2007.

It claimed Goldman did not disclose that Paulson, one of the world's largest hedge funds, had bet that the value of the securities would fall.

The SEC alleged that investors in the mortgage securities, packaged into a vehicle called Abacus, lost more than $1bn (£650m) in the US housing market collapse.

All of that $1bn was then paid out to Paulson, who - unknown to the investors - stood on the other side of the deal as a "short" investor in the deal.

Goldman, arguably the world's most prestigious investment bank, had escaped relatively unscathed from the global financial meltdown.

Since then, the company has become a lightning rod for anger over Wall Street's profligacy and seeming arrogance.

It received $10bn of government aid under the Troubled Asset Relief Program (Tarp) in 2008 - money that Goldman has said throughout that it did not need.

The company also received a $12.9bn cash payout from AIG - the full amount owed to it - after the failing insurer was saved by the US government in by far the most expensive single bail-out of the financial crisis.

Despite these rescues, Goldman went on to record $12.2bn in profits in 2009, on top of the $16.2bn handed out to staff in pay and perks.

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BBC News, 2010. Wall Street giant Goldman Sachs fined £20m by UK's FSA [Online] (Updated 8th Sep 2010)
Available at: http://www.ukwirednews.com/news/88512/Wall-Street-giant-Goldman-Sachs-fined-20m-by-UKs-FSA [Accessed 24th Apr 2014]

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