UK agency fines Goldman Sachs $27 million

[September 09, 2010]  LONDON (AP) -- Britain's financial regulator hit Goldman Sachs International with a 17.5 million pounds ($27 million) fine on Thursday for failing to notify U.K. authorities about an investigation in the United States.

It was the second-largest fine ever imposed by the Financial Services Authority, eclipsed only by the 33.32 million pounds fine announced in June against J.P. Morgan Securities Ltd. for mishandling clients' funds.

The British agency's investigation began in April after the U.S. Securities and Exchange Commission filed civil fraud charges against Goldman Sachs for allegedly misleading buyers of complex mortgage-related investments in 2007. Goldman settled the charges in mid-July by agreeing to pay $550 million -- the largest penalty against a Wall Street firm in the SEC's history.

"This penalty should send a message particularly to the senior management of large institutions of the need to have their firm's U.K. reporting obligations at the forefront of their minds," said Margaret Cole, the FSA's managing director of enforcement and financial crime.

The mortgage securities at issue in the SEC case cost two European banks that bought them nearly $1 billion while allegedly helping Goldman client Paulson & Co., a hedge fund, capitalize on the housing bust by betting on them to fail.

Goldman failed to tell the FSA that the SEC had issued a Wells Notice, formally notifying the company and London-based executive Fabrice Tourre that they were under investigation for allegedly orchestrating the mortgage-linked securities deal, the British agency said.

Tourre was promoted and moved to the company's London office to become executive director of Goldman Sachs International in late 2008. He has denied any wrongdoing and has asked a federal court to throw out the SEC case.

The FSA granted Goldman a 30 percent discount from the maximum fine because it cooperated fully and agreed to settle at an early stage.

"GSI did not set out to hide anything, but its defective systems and controls meant that the level and quality of its communications with the FSA fell far below what we expect of an authorized firm," Cole said.

"The fact that senior business people at GSI in London knew about Mr. Tourre's Wells Notice, but did not consider the obvious regulatory implications for GSI is very disappointing."

The SEC charges were the most significant legal action related to the mortgage meltdown that plunged the United States into recession.

Goldman neither admitted nor denied legal wrongdoing in agreeing to the settlement with the SEC. However, it acknowledged that its marketing materials for the investment deal at the center of the charges omitted key information for buyers.

[Associated Press; By ROBERT BARR]

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