Goldman to do deal with US regulator over Abacus affair

Goldman Sachs is set to try and do a deal with the US regulator to avoid fraud charges over a controversial subprime mortgage market deal.

The US investment bank has opened informal negotiating channels with the Securities and Exchange Commission (SEC), which last month charged it with fraud after details of a financial instrument known as Abacus emerged.

It is thought that Goldmans is preparing to admit to a charge of negligence over the Abacus affair, in order to avoid the more serious offence of fraud, which could severely tarnish its reputation.

Under the Abacus instrument, the SEC alleges that Goldmans' favoured clients were advised to bet against the US sub-prime mortgage market, while the bank also sold deals to other clients that relied on the strength of the sector. The sub-prime market imploded spectacularly in 2008, leading to the deepest global recession since the end of the Second World War.

Banks around the world, including Goldman Sachs, received taxpayer assistance after the crisis threatened to bring down the entire financial system.

Last year, before the SEC investigation was made public, Goldman's chief executive, Lloyd Blankfein, said that the bank was doing "God's work". Goldmans has said the comment was taken out of context. The bank denies any wrongdoing over Abacus, pointing out that it lost money on the transaction. A spokesperson refused to comment yesterday on any deal with the SEC.

Goldmans is due to file its defence documents to the fraud charges within the next two weeks.