GOLDMAN SACHS faces a regulatory probe in Britain and scrutiny from the German government after the US Securities and Exchange Commission sued the firm for fraud tied to collateralized debt obligations (CDO).

British prime minister Gordon Brown yesterday called for the UK Financial Services Authority (FSA) to start an investigation, saying he was “shocked” at the “moral bankruptcy” indicated in the suit.

Germany’s financial regulator, Bafin, asked the SEC for details on the case, a spokesman for chancellor Angela Merkel said.

Politicians that were forced to bail out their banks during the financial crisis are turning on Goldman, which critics say helped caused the turmoil and profited from it. The European Union is also probing Goldman’s role in arranging swaps for Greece that may have masked the country’s budget deficit. The SEC said that in early 2007, as the US housing market teetered, Goldman Sachs created and sold a CDO linked to subprime mortgages without disclosing that hedge fund Paulson and Co helped pick the underlying securities and bet against the vehicle. The firm denies any wrongdoing.

Fiona Laffan, a spokeswoman for Goldman Sachs, and Heidi Ashley, a spokeswoman for the FSA, declined to comment.

“It looks as if people were misled about what happened,” Mr Brown said on the BBC’s Andrew Marr programme yesterday. – (Bloomberg)