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Pursuing Banking Fraud is Top Priority: SEC'S Khuzami

A message to Wall Street's biggest investment banks: Watch out.

Robert Khuzami
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Robert Khuzami

In the Securities and Exchange Commission's first public statement since its press conference announcing charges against Goldman Sachs on Friday, S.E.C. Enforcement Director Robert Khuzami told CNBC, "We have brought and will continue to pursue cases involving the products and practices related to the financial crisis."

S.E.C. officials told CNBC that pursuing fraud related to the financial crisis is a top priority at the agency, and that a wide range of cases are currently being investigated.

Insiders say the agency is better equipped to examine fraud due to a recent restructuring of its divisions. Specific enforcement units, with experience related to the institutions and the products they are investigating have been created.

The Goldman Sachs case is the first to come out of the new structured products division.

On Friday, the investment bank was charged by the Securities and Exchange Commission, claiming Goldman deceived clients by selling them mortgage securities designed by a hedge fund run by John Paulson, without revealing his role in structuring the deals.

Goldman has called the U.S. lawsuit "completely unfounded" and has vowed to defend itself.

Meanwhile, authorities in Germany and the U.K. said they will details from the SEC about the activities of Goldman, as a prelude to potential legal steps following the U.S.-led fraud investigation.

Dutch bank ABN Amro, which was subsequently bought by Royal Bank of Scotland (RBS) in a transaction that contributed to the near collapse of the British bank, is thought to have lost £545 million when a subprime bond it bought turned toxic.

RBS required a huge government rescue package to prevent it going bankrupt, costing the UK taxpayer billions of pounds. RBS, now 84 per cent owned by the state, refused to comment yesterday, but sources close to the bank suggested that it may pursue Goldman in the courts if the fraud allegation is substantiated.

According to British media reports over the weekend, U.K. Prime Minister Gordon Brown also attacked Goldman Sachs over a report in Britain's Sunday Times newspaper that the bank planned to pay its staff more than 3.5 billion pounds ($5.6 billion) for three months' work, including 600 million pounds to 5,500 London-based staff.

In Germany, government spokesman Ulrich Wilhelm told a German newspaper that its regulator will also seek information.

Germany's interest in Goldman's activities stem from the near collapse of Duesseldorf, Germany-based IKB which required a bailout of at least 10 billion euros in several stages after its near collapse in 2007.

The civil lawsuit Goldman faces in the United States is the biggest crisis in years for the company that emerged from the financial meltdown as Wall Street's most influential bank.

Goldman shares slid 12.8 percent on Friday on the news, wiping out more than $12 billion of market value.

- Reuters contributed to this report.

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