Britain's financial regulator started a formal enforcement investigation into Goldman Sachs today, four days after US regulators filed a fraud case against Wall Street's biggest investment bank.
"Following preliminary investigations the Financial Services Authority (FSA) has decided to commence a formal enforcement investigation into Goldman Sachs International in relation to recent SEC allegations.
The FSA will be liaising closely with the SEC in this review," the UK regulator said in a short statement.
The US Securities and Exchange Commission has accused Goldman of hiding from investors the fact that US hedge fund Paulson & Co was betting against a subprime mortgage product that it helped create.
Goldman has denied the charges. The bank reports quarterly results later today.
The FSA's move draws it into what promises to be one of the biggest legal rows in recent banking history, and both the SEC and Goldman are expected to come out fighting.
In documents submitted to the SEC last year, the bank said the regulator was using "the benefit of perfect hindsight" about the magnitude of the sub-prime housing crisis. The SEC notified Goldman in August through an official "Wells Notice" that it was facing a civil liability case.
The documents, a copy of which were seen by Reuters, told the SEC in September that if the matter was litigated a fuller record "will underscore that no one in fact considered Paulson's role important and that no one was misled." Goldman Sachs shares traded in Frankfurt were up 3.9 per cent earlier.
Meanwhile the Bavarian sister party of German chancellor's conservatives has called for a temporary halt in business with Goldman Sachs while the investment bank deals with charges of fraud.
The general secretary of the Christian Social Union (CSU), Alexander Dobrindt, told German business daily Handelsblatt that as long as investigations were ongoing, dealings with Goldman should be put on hold.
Frank Schaeffler, a financial expert of the business friendly Free Democrats (FDP) which shares power with Merkel's CDU, said: "We should let business relations with the US bank rest until the charges have been cleared."
Reuters