European regulators to open own probes of Goldman Sachs

By Howard Schneider
Washington Post Staff Writer
Monday, April 19, 2010; 1:54 PM

Financial regulators in London and Germany on Monday said they would open investigations to see whether Goldman Sachs's sale of mortgage securities broke any local laws following the disclosure that two European banks had lost money on what U.S. officials allege were fraudulent transactions.

London's Financial Services Authority and Germany's BaFin regulatory agency said they were coordinating with the U.S. Securities and Exchange Commission's investigation of Goldman's sale of an investment that, the SEC charges, was structured to fail.

The Royal Bank of Scotland lost an estimated $850 million and the Dusseldorf-based IKB Deutsche Industriebank lost more than $100 million on mortgage-related securities set up by Goldman.

"The FSA is investigating the circumstances of this case and whether there are any implications for the U.K. regulated entities of Goldman Sachs," the FSA said in a prepared statement. "If there are we will take appropriate action."

The FSA announcement follows an angry blast by U.K. Prime Minister Gordon Brown against what he called Goldman's "moral bankruptcy."

As in the United States, the Goldman case promised to figure into the debate over financial reform. Brown, who is in the middle of a reelection campaign, said the SEC's case against Goldman showed the need for tougher bank regulation.

"The banks are still an issue. They are a risk to the economy," Brown said, according to the Financial Times.

In Germany, a spokesman for bank regulator BaFin said the agency would "follow up" with the SEC to see what action might be appropriate.

BaFin is more restricted in its options. A civil lawsuit could be brought only by an injured party such as the IKB bank, and criminal action would come only after referral to the state prosecutor, the spokesman said.

An RBS spokesman said the bank had no comment at this point about the SEC lawsuit or the investigation.

IKB issued a statement saying that it was reviewing the SEC's complaint "in order to identify any steps" that might be warranted.

The bank said it had been assisting in the SEC probe "and will continue to."

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