Goldman Sachs Settles SEC Charges On Pay-to-Play Violations

Goldman Sachs Group, Inc. (NYSE:GS) agreed to settle the charges filed by the Securities and Exchange Commission (SEC) on pay-to-play violations for allegedly giving undisclosed campaign contributions to former Massachusetts state treasurer Timothy Cahill, who was running for the gubernatorial race in 2010.

Goldman Sachs Settles SEC Charges On Pay-to-Play Violations

According to the charges filed by the Commission, Neil M.M. Morrison, former vice president of the investment banking division of Goldman Sachs, who was responsible in soliciting municipal underwriting business in Massachusetts including the Treasurer’s Office, was actively engaged in the political campaign of Cahill who was then running for governor.

The SEC alleged that Morrison used his work hours at Goldman Sachs Group, Inc. (NYSE:GS) and the firm’s resources to provide substantial in-kind and cash campaign contributions to Cahill. His active participation in Cahill’s campaign gave him access to information regarding internal deliberations on underwriter selection.

Goldman Sachs Group, Inc. (NYSE:GS) engaged in municipal securities business with issuers connected with Cahill as Massachusetts Treasures and gubernatorial candidate for two years from 2008 to 2010. According to the SEC Order, Goldman Sachs violated Section 15B(c)(1) of the Exchange Act and the Municipal Securities Rulemaking Board’s (“MSRB”) Rule G-37(b).

The Commission said Goldman Sachs “did not take steps to ensure that the attributed contributions or campaign work or conflicts of interest raised by them were disclosed in the bond offering documents, in violation of MSRB Rule G-17, which requires broker-dealers to deal fairly and not engage in any deceptive, dishonest, or unfair practice. The order found that Goldman Sachs failed to effectively supervise Morrison in violation of MSRB Rule G-27.”

According to SEC, Goldman Sachs Group, Inc. (NYSE:GS) was prohibited from “engaging in municipal underwriting business with certain Massachusetts municipal issuers for two years after the contributions.” However, the bank continued to engage in 30 allegedly prohibited underwriting with state and local Massachusetts issuers of municipal securities, and earned more than $7.5 million in fees.

Goldman Sachs Group, Inc. (NYSE:GS) agreed to pay approximately $12 million in fines to settle the charges filed the Commission. The fines include $7,558,942 in disgorgement, $670,033 in prejudgment interest, and $3.75 million penalty. The bank paid the largest fine imposed by SEC for Municipal Securities Rulemaking Board (MSRB) pay-to-play violations.

In a statement, Robert Khuzami, Director of SEC’s Division of Enforcement said, “The pay-to-play rules are clear: municipal finance professionals that use their firm’s resources to campaign on behalf of political candidates compromise themselves and the firms that employ them.”

SEC’s case against Morrison will continue.