Europe Launches Goldman Investigations

As Wall Street considers the implications of the Goldman Sachs fraud investigationEuropean governments and regulators are beginning to formulate their response.

Goldman Sachs
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Goldman Sachs

UK Prime Minister Gordon Brown told the BBC that “he wants a special investigation done into the entanglement of Goldman Sachs and the companies there with other banks and what happened. There are hundreds of millions of pounds have been traded here and it looks as if people were misled about what happened. I want the Financial Services Authority to investigate it immediately."

His comments came as the Sunday Times reported that RBS was the biggest loser from the alleged fraud with losses totaling $840 million. The same paper reported that RBS is currently considering legal action against the US bank.

The FSA in London told that the alleged fraud was a New York issue and at this stage believed it had no reason to launch an investigation despite Fabrice Toure, the 31 year old Goldman Sachs banker now working in London.

Brown, currently facing a tough re-election battle, seemed additionally angry at Goldman Sachs' plan to pay 3.5 billion pounds ($5.4 billion) in bonuses as reported in British newspapers.

"I am shocked at this moral bankruptcy," he said on BBC TV. "This is probably one of the worst cases that we have seen."

Brown called for a "new global constitution for the banking system" that would, among other things, ban bonus packages like the ones planned by Goldman Sachs.

Germany Considering Investigation

In Germany the government is reportedly considering taking legal action against Goldman Sachs. A spokesman for the German government, Ulrich Wilhelm told newspaper Welt am Sonntag that the government was taking legal steps against Wall Street's most powerful bank.

"The German regulator BaFin will file a request for information with the US Securities and Exchange Commission," Wilhelm said. IKB and state-owned KfW are believed to be the biggest losers in this case from Germany.

Dutch Probe Merrill Lynch

Merrill Lynch was engaged in the “same type of fraudulent conduct” that Goldman Sachs is accused of by the SEC according to Dutch bank Rabobank.

In a letter filed with the New York State Supreme court on Friday lawyers for the Dutch banking group said Merrill Lynch committed a similar fraud in the structuring of a $1.5 billion collateralized debt obligation, known as Norma CDO Ltd.

"The SEC charges bear directly on the sufficiency of Rabobank's complaint as Rabobank has alleged that Merrill Lynch engaged in precisely the same type of fraudulent conduct (as Goldman) in the structuring and marketing of Norma through having failed to disclose that Norma's collateral pool had been selected to benefit short positions taken by" an equity investor in Norma, said Jonathan Pickhardt, a lawyer for Rabobank.