A German state bank said it had severed business ties with Goldman Sachs Group Inc, citing US regulators’ allegation that the dominant Wall Street bank committed fraud, while France eyed an investigation of its own.
Goldman is accused of defrauding investors by failing to say that prominent hedge fund manager John Paulson bet against a Goldman subprime debt product that he helped design.
In the latest sign that the US Securities and Exchange Commission’s (SEC) allegations could hurt Goldman’s standing with some customers, the SEC complaint was cited by German public sector bank BayernLB as it cut business ties with Goldman.
Another German bank, IKB Deutsche Industriebank AG, was one of the main investors in the Abacus synthetic collateralized debt obligation deal that is the focus of the complaint.
Goldman, which is being investigated by the SEC and Britain’s market watchdog, is also attracting attention in France.
French Economy Minister Christine Lagarde said on Wednesday that the accusations also warranted a full probe by French regulators. Regulator Autorite des Marches Financiers said earlier this week that it planned to cooperate with the SEC over the Goldman case if necessary, adding on Wednesday that it aimed to publish an update on the probe next week.
Newly released official documents showed that Goldman aggressively increased political campaign donations and lobby spending in Congress earlier this year as the financial reform debate gathered momentum.
In another sign that Goldman and its Wall Street allies are struggling to gain traction in Washington, a US Senate committee approved on Wednesday a bill aimed at reforming the derivatives market, moving the Senate one step closer to passing sweeping regulation over the US$450 trillion derivatives market.
Criticism from some quarters that the SEC suit was politically motivated was fueled by the revelation this week that the SEC’s commissioners were split 3-2 on whether to pursue the complaint, with both Republican commissioners dissenting.
US President Barack Obama, who has made regulatory reform a cornerstone of his agenda, said “categorically” that the SEC had never discussed the case with the White House.
SEC Chairperson Mary Schapiro also denied that there was any political motivation for the probe.
“We will neither bring cases, nor refrain from bringing them, because of the political consequences,” she said in a statement. “We will be governed always and only by the facts and the law.”
Meanwhile, the sole Goldman Sachs employee being sued by the SEC in the case, 31-year-old Frenchman Fabrice Tourre, has agreed to testify at a Senate hearing next week, Bloomberg News reported.
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