Goldman Sachs (NYSE: GS) Reaches Settlement with SEC
The Goldman Sachs Group Inc (NYSE: GS), the New York based investment bank, has agreed to a $12 million settlement with the Securities and Exchange Commission.
Goldman will pay the fine to settle civil charges accusing one of its executives of providing campaign services to a Massachusetts official in return for bond business, and issue the SEC has been keying on recently. Connected to this, the Securities and Exchange Commission also charged former Goldman Sachs vice president Neil Morrison with trying to influence the awarding of state contracts through campaign work for former Massachusetts Treasurer Timothy Cahill.
The SEC alleges that Morrison campaigned for Cahill from his Goldman Sachs office using company phones and email between November 2008 and October 2010, and the services weren’t reported by Goldman Sachs. The company earned more than $7.5 million in fees from underwriting Massachusetts bond sales after Morrison’s activities, the agency noted. Goldman fired Morrison in December 2010.
By law, firms are banned from underwriting municipal bond sales within two years of making any contribution to an official of the government issuing the bonds. For years, regulators have issued warnings to investment firms and state and local governments for the so called ‘pay to play’ arrangements and is coming down hard on the $2.7 trillion municipal bond market. The enormous muni bond market is tapped by governments around the country to finance schools, roads, hospitals and public works projects.
The SEC has brought a number of such cases against Wall Street banks and other investment firms, often involving campaign contributions or other payments. SEC Enforcement Director Robert Khuzami said in a statement “Municipal finance professionals who use their firm’s resources to campaign on behalf of political candidates compromise themselves and the firms that employ them.” The settlement consists of a $3.75 million fine and about $8.2 million in restitution plus interest. The SEC said the $11.95 million Goldman Sachs is paying was the largest settlement amount it had ever won in a case involving “pay-to-play” violations. The size of this settlement should serve as a warning to the marketplace, that this activity is no longer accepted and the SEC will be going after vigorously.
Goldman Sachs neither admitted nor denied the allegations but it did agree to refrain from future such violations. The company also was censured by the SEC. Censure brings the possibility that Goldman Sachs could face a stiffer sanction if the alleged violation is repeated, though the firm hopefully learns from this mistake.