Top Goldman leaders had a role in mortgage unit

Tensions were rising inside Goldman Sachs. It was late 2006,and an argument had broken out inside the Wall Street banks prized mortgage unit...

Tensions were rising inside Goldman Sachs. It was late 2006,and an argument had broken out inside the Wall Street banks prized mortgage unit a dispute that would reach all the way up to the executive suite. One camp of traders was insisting that the American housing market was safe. Another thought it was poised for collapse. Among those who saw disaster looming were an effusive young Frenchman,Fabrice P Tourre,and his colleague,Jonathan M Egol,the mastermind behind a series of mortgage deals known as the Abacus investments. Their elite mortgage unit is now at the center of allegations that Goldman and Tourre,31,defrauded investors with one of those complex deals.

The SEC filed a civil fraud suit on Friday that essentially says that Goldman built the financial equivalent of a time bomb and then sold it to unwitting investors.

Goldman has vowed to fight the SEC But the allegations have left many on Wall Street wondering how far the investigation might spread inside Goldman and perhaps beyond. Pressure on Goldman mounted on Sunday as two members of Congress and Britain called for investigations into the banks role in the mortgage market. Germany also said it was considering legal action against the bank.

Tourre was the only person named in the SEC suit. But according to interviews with eight former Goldman employees,senior bank executives played a pivotal role in overseeing the mortgage unit just as the housing market began to go south. According to these people,executives up to and including Lloyd C Blankfein,the CEO,took an active role in overseeing the mortgage unit. It was Goldmans top leadership,these people say,that finally ended the dispute on the mortgage desk by siding with those whobelieved home prices would decline. Lucas van Praag,a Goldman spokesman,said that senior executives were not involved in approving the Abacus deals.