Goldman, Sachs & Co. agreed to pay $14.5 million to settle charges that a former vice president engaged in pay to play when working for the firm.
The Securities and Exchange Commission Thursday announced the charges and the settlement, saying Goldman vice president Neil Morrison solicited business from the Massachusetts treasurer's office starting in July 2008.
From November 2008 to October 2010 Morrison did a substantial amount of volunteer work in his office for then-Massachusetts Treasurer Timothy Cahill, the SEC alleges. In this work Morrison supported Cahill's candidacy to become Massachusetts governor. Cahill ran unsuccessfully as an independent candidate in the November 2010 elections.
On a volunteer basis Morrison was "fundraising, drafting speeches, communicating with reporters, approving personal decisions, and interviewing at least one possible running mate," the SEC alleges. "Morrison at times referenced his campaign work while soliciting underwriting business in an apparent attempt to curry favor during the selection process," the SEC claims.
Morrison also gave a check to a friend for $400 and directed the friend to write a check to Cahill's campaign for $500, the SEC alleges. These figures are above the Municipal Securities Rulemaking Board's rules setting a $250 ceiling for contributions to candidates for whom municipal professionals could vote.
The SEC said Goldman Sachs violated section 15(c)(1) of the Exchange Act and MSRB Rule G-37(b), which prohibit firms from underwriting offerings for municipal issuers within two years after making any contribution to an official of such issuer.
The SEC found that "Goldman Sachs did not take steps to ensure that the attributed contributions or campaign work or the 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."
"We detected Morrison's activities, promptly alerted regulators, terminated his employment, and fully cooperated with the investigators," wrote Goldman Sachs spokesman Michael DuVally in a statement. "We accept responsibility for the consequences of his unauthorized actions under the terms of the settlements announced today and are pleased to resolve these investigations."
Goldman fired Morrison in December 2010. The firm has taken steps to prevent similar inappropriate actions at the firm in the future, DuVally said. During the period when Goldman should have been barred from work in Massachusetts, it participated in 30 deals and earned $7.5 million in fees, the SEC said.
Goldman has agreed to a settlement with the SEC whereby Goldman pays $7.5 million in "disgorgement," $670,000 in interest and $3.75 million in penalty fees to the SEC, minus $2.1 million in credit for a deal that Goldman reached with Massachusetts. The penalty is the largest ever by the SEC for a MSRB pay-to-play violation. The SEC will hand over half the penalty money to the MSRB. The firm also will pay $4.6 million to Massachusetts.
Responding to the charges, Massachusetts Treasurer communications director Jon Carlisle wrote in an e-mail, "These are deeply troubling events and accusations that involve a profound breach of the public trust. The current leadership at Treasury has cooperated fully with the investigation and will continue to do so."
Both Carlisle and SEC chief of municipal securities and public pensions unit Elaine Greenberg said they could not comment on whether former Massachusetts Treasurer Cahill may have been aware of Morrison's inappropriate activities.
On April 2 a grand jury indicted Cahill on charges that he used $1.65 million in Massachusetts State Lottery advertising to aid his campaign for governor in 2010.
"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," said director of SEC's division of enforcement Robert Khuzami.
"We are pleased that this settlement brings back more than $4 million to the commonwealth and serves to protect the integrity of the commonwealth's bidding process," said Massachusetts Attorney General Martha Coakley.
The SEC is initiating an administrative law proceeding against Morrison, said Elaine Greenberg, the enforcement division's muni and public pensions unit.
