Goldman Sachs facing questions in Europe

April 19, 2010 at 12:00a.m.

Associated Press

LONDON

Goldman Sachs is facing a potential backlash in Europe over the fraud case brought against it in the United States, with Britain’s Prime Minister Gordon Brown calling for authorities there to investigate and accusing the investment bank of “moral bankruptcy.”

Germany also said it would ask for detailed information about the case.

Both governments had to bail out banks that lost hundreds of millions of dollars on investments marketed by Goldman, according to the fraud suit brought by the U.S. Securities and Exchange Commission, in Britain’s case Royal Bank of Scotland through its acquisition of parts of ABN Amro.

The SEC said the Royal Bank of Scotland paid Goldman $841 million to unwind ABN Amro transactions. Royal Bank of Scotland is now 84 percent owned by British taxpayers after being partly nationalized by the government.

Germany’s IKB Deutsche Industriebank AG, an early victim of the credit crunch, lost nearly all its $150 million investment, the SEC said.

Brown on Sunday called for a full inquiry by Britain’s Financial Services Authority in conjunction with the SEC.

Britain would join Germany, where government officials said they would seek information about the bank’s activities.

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

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

The U.S. charges against Goldman Sachs relate to a complex investment tied to the performance of pools of risky mortgages.

In a complaint filed Friday, the Securities and Exchange Commission alleged that Goldman marketed the package to investors without disclosing that the pools were picked by another client, a prominent hedge fund that wanted to bet the U.S. housing bubble would burst.