WASHINGTON — Goldman Sachs, rocked by what it calls a "surprise" government suit alleging civil fraud and now facing a British inquiry as well, said Tuesday that it rang up first-quarter earnings of $3.46 billion, soaring past analysts' expectations.

During an earnings conference call, Greg Palm, the firm's co-general counsel, said that Friday's civil fraud suit, which the Securities and Exchange Commission filed after an 18-month investigation, left Goldman's legal team "very surprised" because "no one told us about it in advance."

Palm said that an internal company investigation found no evidence of wrongdoing. He insisted that Goldman had done nothing wrong and reiterated the company's vow to fight the case.

Separately, a Goldman spokesman confirmed that President Barack Obama's former White House counsel, Gregory Craig, is part of Goldman's legal team at the Washington law firm of Skadden Arps, where he migrated after leaving the White House last year.

After months of discussions the company and the agency had reached an impasse when the suit was lodged, reportedly on a 3-2 party-line vote by the five-member SEC, with the Democrats prevailing.

Palm confirmed that Goldman has been contacted by the British Financial Services Authority, which formally opened its own investigation. He called that inquiry "entirely expected and appropriate."

The SEC complaint accuses Goldman and one of its vice presidents of misleading investors by letting a large hedge fund, Paulson & Co., help select risky home loans for an offshore securities deal without disclosing that Paulson planned to bet on their default.

Palm and David Viniar, Goldman's chief financial officer, told analysts that the firm lost more than $100 million on the deal, more than the $90 million net loss that the company had claimed earlier.

The SEC said that Paulson reaped a $1 billion profit and that the two investors in the exotic deal who bet that a set of mortgages would perform well — the German bank IKB and ACA Capital Management — wound up losing as much. ABN Amro, a huge European bank, had guaranteed ACA's investment and had to pay $840 million, the complaint said.

The British Financial Services Authority opened an inquiry because ABN Amro was later purchased by the Royal Bank of Scotland, which needed a bailout from the British government to survive the global financial crisis.

Palm contended that the case is built on "a narrow set of facts" and would likely come down to the credibility of accounts from Goldman Vice President Fabrice Tourre, whom the SEC is suing, and former executives of ACA. Tourre's still a Goldman employee but is taking time off.

Disputing the SEC's version, Palm said that ACA selected the securities in the deal and rejected many of Paulson's suggestions. Asked whether IKB had any role in selecting securities, he said representatives of the German bank "suggested that a couple of the securities" be removed.

As to allegations that Tourre misled investors about Paulson's role, Palm said: "We certainly think that there should be prohibitions for people misleading people. And we would never permit it."

Goldman's diluted earnings amounted to $5.59 per common share, compared with $3.39 for the first quarter last year, on revenue of $12.78 billion. Analysts' consensus earnings forecast was for $2.70 a share.

Underscoring the glowing earnings news, Goldman said that it repurchased more than 13 million of its shares, and its capital still grew by $2 billion.

Goldman's chief executive officer, Lloyd Blankfein, said in a statement that the company's first-quarter performance "reflects signs of growth across the economy and the strength of our client franchise. . . . In light of recent events involving the firm, we appreciate the support of our clients and shareholders, and the dedication and commitment of our people."

Goldman said the company is taking a cautious approach, keeping a conservative capital-to-risk ratio and limiting the funds set aside for employee compensation to 43 percent of net revenues, down from 50 percent a year ago. Bonuses at Goldman and other Wall Street firms have been a hot-button issue during a time when the nation's unemployment rate hovering near 10 percent.

MORE FROM MCCLATCHY

Now it's the Senate's turn to take on Goldman, Moody's

SEC charges Goldman Sachs with civil fraud in subprime deal

Pulitzer finalist: McClatchy probes of Goldman Sachs, Moody's and SEC

To ask a question about this story or any economic question, go to McClatchy's economy Q&A