Goldman Sachs fined £17.5m by FSA over fraud investigation

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The Independent Online

Goldman Sachs is to pay an estimated £17.5m fine to the UK's Financial Services Authority, after admitting that it should have told the regulator it was under investigation for fraud in the US.

The fine is among the largest levied in the UK and comes two months after Goldman paid $550m on the other side of the Atlantic to settle charges that it misled investors in a complex mortgage deal inked at the height of the US housing bubble. The FSA is expected to announce its settlement today, concluding a five-month investigation.

When the US regulator, the Securities and Exchange Commission, laid civil fraud charges against Goldman and one of its UK-based employees in April, it came as a surprise to the FSA. And when it emerged that the SEC had told Goldman nine months earlier that it was going to file charges, the FSA launched an investigation into why it was not told.

The regulator is understood to have been particularly annoyed because the Goldman employee at the centre of the charges, Fabrice Tourre, who denies wrongdoing, had been transferred to a job in London only months earlier.

Neither the FSA nor Goldman would comment on media reports of their settlement, which emerged last night.

The largest fine ever levied by the FSA was a £33m penalty against JP Morgan Securities in June, for failing to keep client money in protected, properly segregated accounts.

Goldman's settlement with the British authorities marks the end of governmental investigations into its controversial mortgage derivative, known as Abacus. Goldman was accused in the US of failing to disclose that a hedge fund had been intimately involved in creating Abacus, which was sold to European investors including ABN Amro, now part of the UK government-controlled Royal Bank of Scotland. The investors who bought Abacus in 2007 lost $1bn when the underlying mortgages collapsed in value just a few months later; meanwhile John Paulson, the hedge fund manager who helped to pick the mortgages, pocketed $1bn from his secret bets that Abacus would collapse.

The SEC told Goldman last summer that it could expect fraud charges. The bank is facing shareholder lawsuits in the US, accusing it of misleading investors by failing to disclose the existence of the investigation.