UK watchdog fines Goldman Sachs $27 million

NEW YORK/LONDON Thu Sep 9, 2010 10:44am EDT

Traders work in the Goldman Sachs stall on the floor of the New York Stock Exchange July 16, 2010. REUTERS/Brendan McDermid

Traders work in the Goldman Sachs stall on the floor of the New York Stock Exchange July 16, 2010.

Credit: Reuters/Brendan McDermid

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NEW YORK/LONDON (Reuters) - Britain's financial watchdog fined Goldman Sachs Group Inc 17.5 million pounds ($27 million) for failing to tell the regulator that it was the subject of a U.S. probe, reviving disclosure headaches for the Wall Street powerhouse.

The fine -- one of the biggest ever imposed in Britain -- stemmed from Goldman's troubled Abacus mortgage-security product, which was the focus of an investigation by the U.S. Securities and Exchange Commission.

But it was not the Abacus product itself that put Goldman at odds with Britain's Financial Services Authority. Instead, it was the firm's failure to inform the FSA that it was facing an SEC probe.

"Goldman Sachs International 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," FSA director Margaret Cole said in a statement on Thursday.

In a terse response to the FSA fine, a Goldman Sachs spokeswoman said, "We're pleased the matter is resolved."

In July, Goldman agreed to pay $550 million to settle civil fraud charges over how it marketed the Abacus subprime mortgage product, ending months of negotiations with the SEC that rattled the bank's clients and investors.

Goldman had known for several months that charges from the SEC were possible, but it did not report it to shareholders, regulators or clients. Its shares fell 12 percent on April 16, the day the SEC sued. That was seven months after the bank received a Wells Notice alerting it to potential charges.

DISCLOSURE CONCERNS

The lack of disclosure has prompted lawsuits and investigations -- and even caused the bank to lose business.

Jacob Zamansky, an attorney who is representing shareholders in a class-action lawsuit against Goldman, said such suits will be bolstered by the FSA fine.

"This is not going away," said Zamansky. "I believe these regulatory actions strengthen the case of shareholders against Goldman."

On June 16, the largest U.S. public pension fund, Calpers, notified Goldman that it would not use the firm in its pool of real estate investment consultants, according to a document obtained by Reuters. Calpers's decision came after fund officials said they planned to question Goldman about its failure to disclose, when it bidding for a Calpers contract, that it was facing an investigation from the SEC.

The U.S. Financial Industry Regulatory Authority also was investigating Goldman's failure to report the Wells Notice that it received in September regarding trader Fabrice Tourre.

Tourre, a French banker, was involved in marketing the Abacus product. Tourre, who had dubbed himself "Fabulous Fab," denied allegations that he or the bank misled investors over the high-risk Abacus product.

Tourre marketed the Abacus product back in 2007 -- toward the height of a bull market run and just before the onset of the credit crisis that rattled markets and caused a huge slump in the value of many mortgage-related debt products.

The FSA said Goldman failed to notify it of the fact that the SEC had issued Wells Notices to the bank and to Tourre.

Goldman Sachs shares were up 1.8 percent to $150.20 in morning trade on the New York Stock Exchange.

(Reporting by Sudip Kar-Gupta in London and Steve Eder in New York; Editing by Mike Nesbit)

($1=.6463 pounds) (Reporting by Steve Eder)

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