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.