Hong Kong Regulator Says Goldman Fallout in Hong Kong ‘Limited’

Source: Bloomberg By Debra Mao

Hong Kong’s securities regulator said the collateralized debt obligations at the heart of a U.S. Securities and Exchange Commission suit against Goldman Sachs Group Inc. weren’t sold or marketed in the city.

“There wasn’t the appetite for those types of securities here,” Martin Wheatley, chief executive officer of the Securities and Futures Commission, said today after speaking at a fund managers’ conference in Hong Kong. “I think the impact for Hong Kong would be quite limited but a lot remains to be seen,” he said.

The SFC hasn’t discussed the Goldman Sachs suit with the SEC, Wheatley said. Britain’s Financial Services Authority said yesterday it would formally investigate the London units of Goldman Sachs Group Inc. after the SEC filed a lawsuit on April 16 over Goldman Sachs’s marketing of the CDO.

Goldman Sachs will cooperate with the FSA’s investigation, the bank said yesterday. The bank has previously denied wrongdoing and said it will fight the SEC’s case because it is “completely unfounded in law and fact.”

Wheatley today told investors at the Fund Forum Asia 2010 he viewed the recent U.S. regulator’s action against Goldman Sachs like a British Airways executive might view the horizon.

“Dust clouds keep appearing” in the aftermath of the global financial crisis, he said.

Mimimize Risk

While regulators should work to minimize regulatory arbitrage and systemic risk, “our response should be balanced,” he said. Hong Kong hasn’t seen the major bank or broker failures that occurred in Europe or the United States, Wheatley said.

The SFC investigated the sale of more than $1.8 billion of notes guaranteed by failed Lehman Brothers Holdings Inc. to investors in Hong Kong. The slump in their value sparked almost daily protests by retail buyers who said they had been misled. Sixteen Hong Kong banks agreed to partial refunds.

This month two employees of Bank of China Ltd.’s Hong Kong unit were charged for fraudulently or recklessly inducing others to invest money in the so-called Lehman minibonds. Wheatley declined to comment on whether more arrests could be forthcoming, calling it a matter for the Hong Kong police.

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