The FSA has embarked upon a formal enforcement investigation into Goldman Sachs following preliminary investigations.

The Securities and Exchange Commission (SEC) in the US has been investigating the investment bank over alleged misdemeanours and yesterday charged the firm and one of its London-based members of staff with a $1 billion fraud.

It alleges that Goldman Sachs created and sold an extremely risky collateralised debt obligation (CDO) which hedge fund Paulson & Co was short-selling on. The US regulator claims that while other investors lost almost $1 billion, Paulson earned almost the same amount.