Neil Morrison brought his experience as a Massachusetts deputy treasurer and a year working on Wall Street to Goldman Sachs Group Inc. when the firm hired him as a Boston-based public-finance banker in 2008.
While Morrison, now 38, would help the bank pull in $7.5 million in fees for underwriting $9 billion of state bonds before he was fired in 2010, his methods ultimately backfired. Yesterday, Goldman Sachs agreed to pay $14.4 million to settle state and federal charges that Morrison broke rules meant to prevent peddling influence to win government bond business.
"Pay-to-play is an inevitable consequence of bankers seeking lucrative fees controlled by politicians," said Joseph Franco, a law professor at Suffolk University in Boston and former assistant general counsel at the U.S. Securities and Exchange Commission. "Firms create incentive structures for their bankers that fuel this sort of conduct."
Congress created the Municipal Securities Rulemaking Board in 1975 to write rules regulating the underwriters of state and local bonds. The MSRB has broadened its pay-to-play rules over the years, limiting how much bankers can contribute to politicians who control state and local bond issues, while the SEC, which enforces the rules, has been increasing its oversight of the $3.7 trillion market.
Morrison made improper in-kind campaign contributions to former Treasurer Tim Cahill while seeking bond work from Massachusetts, according to the SEC. While a vice president at the bank, Morrison helped Cahill's unsuccessful run for governor from November 2008 to October 2010, according to the agency.
"While rules designed to curb conflicts will never eliminate this kind of behavior, strict enforcement of such rules is critical to changing the day-to-day dynamics of politicians, firms and individual bankers," Franco said.
In an e-mail cited by the SEC, Morrison said, "I am staying in banking and don't want a story that says that I am helping Cahill, who is giving me banking business. If that came out, I'm sure I wouldn't get any more business."
After leaving Goldman Sachs, Morrison worked for a time at Northwind Strategies, a Boston-based political-consulting firm.
The Cahill campaign work by Morrison disqualified Goldman Sachs from underwriting bonds for Massachusetts and its agencies for two years, according to the SEC. Yet the New York-based bank subsequently participated in 30 offerings, improperly receiving more than $7.5 million in fees, according to the agency.
"We detected Morrison's activities, promptly alerted regulators, terminated his employment, and fully cooperated with the investigations," Michael DuVally, a Goldman Sachs spokesman, said in a statement. "We accept responsibility for the consequences."
The bank didn't admit or deny wrongdoing. Thomas Kiley, Morrison's lawyer, didn't respond to a telephone call seeking comment on the settlement. Morrison also didn't respond to telephone calls seeking comment.
Goldman Sachs agreed to pay $12 million to the SEC, partly offset by about $1.5 million paid to Massachusetts and $607,645 handed over to the Massachusetts Water Pollution Abatement Trust. The firm also delivered $2.4 million to Attorney General Martha Coakley's office, a separate state settlement shows.
"It's perhaps merely a slap on the wrist but it says this is where we're going," said David Lipton, director of the securities regulation program at Catholic Univerity of America's Columbus Law School in Washington and a former member of the MSRB board. "There is a desire to keep the professional from attracting business through political contributions."
Morrison also raised money for Cahill, according to the SEC. Cahill was elected treasurer as a Democrat and ran for governor as an independent. A former Cahill aide, Morrison drafted speeches for his old boss, communicated with reporters, advised on personnel decisions, and interviewed at least one possible running mate, the agency said. It said some of the work was done during the bank's normal office hours.
Morrison, a lawyer, sometimes referred to his campaign work while soliciting business in an attempt to curry favor from Cahill's staff, the SEC said.
In another e-mail cited by the agency, Morrison urged a deputy treasurer not to hand out underwriting business "willy- nilly."
"If people aren't willing to be creative with their support then they shouldn't expect business," Morrison said in the e-mail. "This has to be a political decision."
Morrison also made an indirect cash contribution by giving money to a friend who then wrote a check to the Cahill campaign, according to the SEC. His contributions created a conflict of interest that Goldman Sachs didn't disclose, the agency said.
Cahill, who served two terms as treasurer from 2003 to January 2011, separately faces state claims that he improperly used lottery advertising funds to promote his 2010 run for governor. He pleaded not guilty to corruption charges in April in Suffolk Superior Court in Boston.
The bank generated $905 million in revenue from debt underwriting in the first six months of this year, or 5.5 percent of the firm's first-half revenue, according to a July earnings report.
"This kind of settlement strikes the appropriate fear into personnel," said Lipton, the former MSRB board member. "It certainly doesn't help the bank's reputation either."