Goldman Sachs 'facing criminal inquiry'

Goldman Sachs shares fell almost 10% amid reports it was under criminal investigation for the way it sold complex mortgage-backed products to clients.

Earlier this month, the US financial regulator brought civil charges against the bank for defrauding investors.

It alleged Goldman failed to disclose that a firm advising it on a product was betting it would decline in value.

Goldman denies the accusations and said it was "not surprised" by the reports.

"Given the recent focus on the firm, we are not surprised by the report of a [criminal] inquiry. We would fully co-operate with any requests for information," a Goldman spokesperson said.

Shares in Goldman fell by 9.4% in Friday trading in New York on the back of the reports. Other banking stocks also dropped.

The investigation is being run from the US Attorney's office in New York, according to reports.

According to the Wall Street Journal, the criminal probe was underway before the civil charges were laid by the Securities and Exchange Commission (SEC).

To file charges, prosecutors would have to gather evidence that company employees knowingly broke the law.

The burden of proof is higher than in the civil case brought earlier this month by the Securities Exchange Commission, says the BBC's Steve Kingstone in Washington.

Goldman executives were grilled earlier this week by a US Senate panel.

They were criticised for selling - and profiting from - complex derivatives based on mortgage investments that they knew were very risky, spreading the financial crisis.

Much of the questioning centred on whether Goldman had bet on these products falling in value. Though legal, the senators questioned the morality of such actions.

Goldman boss Lloyd Blankfein denied that his firm had acted improperly, arguing that it was simply giving its clients what they wanted - exposure to the housing market.

Earlier in the session, Fabrice Tourre - the London-based bond trader named in the civil fraud case against the bank who helped to devise some of the complex derivatives offered by Goldman - said he "categorically" denied the SEC's allegations.

Goldman Sachs, the world's biggest investment bank, reported profits of $3.5bn (£2.3bn) in the first three months of this year, almost double the amount it made in the same period in 2009.

It was recently criticised for helping Greece mask the full extent of its debt problems by using complicated currency swap trades.