Embarrassing revelations about the bank’s dealings during the credit crisis will not make comfortable listening

Pressure continued to mount on Goldman Sachs boss Lloyd Blankfein today as he prepared to face a potentially fractious grilling by lawmakers in Washington tomorrow.

In a keenly awaited hearing to examine a $1bn (£647m) fraud case brought by US regulators, Blankfein will appear before a Senate committee alongside the bank’s chief financial officer, David Viniar, and a controversial London-based employee, Fabrice Tourre, to answer accusations of unethical and unlawful profiteering from the global economic meltdown.

Goldman also faces a class action suit from investors. New York law firm Robbins, Geller, Rudman & Dowd today filed a preliminary action against the bank, accusing it of deceiving shareholders by failing to disclose that it received notice of a securities and exchange commission investigation as far back as July 2009.

Adding to its woes, Goldman’s bosses were the subject of pointed criticism from a former chief executive, Jon Corzine, who said defending the firm’s conduct would involve a “very uncomfortable justification”.

Corzine, who ran Goldman between 1994 and 1998 before serving as Democratic governor of New Jersey, told ABC News that Goldman’s contentious Abacus mortgage deal, the subject of a prosecution brought by the SEC, was structured with no economic benefit.

“Hedging positions is a normal function. Unfortunately in this particular case, the transaction didn’t appear to have a lot of underlying connection to providing money for the mortgage market. And that’s going to be a problem even justifying,” Corzine said. He said the deal “may be legal, may not be legal”, but either way was “going to be a very uncomfortable justification”.

According to the SEC, Goldman failed to tell investors that a US hedge fund, Paulson & Co, had chosen some of the mortgages within the $1bn Abacus package and that Paulson was betting the deal would fail. Within nine months, 99% of the home loans within Abacus had been downgraded, leaving Royal Bank of Scotland, as backstop to the transaction, with an $840m bill.

Goldman is also accused of cynically playing the housing market while millions of Americans were losing their homes.

In Congress today a group of 60 lawmakers signed a letter calling on the SEC to broaden its investigation to all 25 known instances of Abacus-style deals peddled by Goldman over the period of the credit crunch. “We’ve got to look into every aspect of these deals and figure out exactly what went wrong,” said Elijah Cummings, a Democratic congressman.

Goldman, which describes the SEC’s suit as “completely unfounded”, insists it did not profit from America’s sub-prime mortgage crisis and made a $1.2bn loss on the home loans market in 2007 and 2008.

Tourre, the salesman who put together the Abacus deal, is not in Goldman’s good books. Emails between him and his girlfriend, made public over the weekend, show Tourre criticising his own product as a little “Frankenstein” and as a product of “intellectual masturbation”. In the exchanges he joked that he had been selling complex derivatives to “widows and orphans” at an airport in Belgium, which Goldman was quick to insist was untrue. Tourre, 31, is on paid leave.

The SEC’s lawsuit against Goldman has given the Obama administration a tailwind in its efforts to force tougher Wall Street oversight through Congress. In response to a Republican complaint, the SEC’s inspector-general has launched an investigation into whether the timing of the prosecution was politically influenced.

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