Goldman Sachs Group, Inc. (GS: Quote) has agreed to pay $12 million to the Securities and Exchange Commission to settle charges of "pay-to-play" violations raised by the agency, the regulator said Thursday.
The SEC charged the investment bank and one of its former bankers with "pay-to-play" violations involving undisclosed campaign contributions to then-Massachusetts state treasurer Timothy Cahill while he was a candidate for the office.
Pay-to-play schemes involve campaign contributions to influence the award of lucrative public contracts for securities underwriting business. This marks the first SEC enforcement action for pay-to-play violations involving "in-kind" non-cash contributions to a political campaign, the SEC said in a statement.
According to the regulator, Neil Morrison was a vice president in the firm's Boston office and solicited underwriting business from the Massachusetts treasurer's office beginning in July 2008. Morrison also was engaged in working on Cahill's political campaigns from November 2008 to October 2010.
At times, Morrison conducted campaign activities from the Goldman Sachs office during work hours, using the firm's phones and e-mail.
The SEC said that Morrison's use of Goldman Sachs work time and resources for campaign activities constituted valuable in-kind campaign contributions to Cahill attributable to Goldman Sachs and disqualified the firm from engaging in municipal underwriting business with certain Massachusetts municipal issuers for two years after the contributions.
Goldman Sachs subsequently participated in 30 prohibited underwritings with Massachusetts issuers and earned more than $7.5 million in underwriting fees.
Goldman Sachs agreed to settle the charges by paying $7.56 million in disgorgement, $670,033 in prejudgment interest and a $3.75 million penalty. This is the largest ever imposed by the SEC for Municipal Securities Rulemaking Board pay-to-play violations. The SEC's case against Morrison continues.
Apart from his direct campaign work for Cahill, Morrison made an indirect cash contribution also by giving cash to a friend who then wrote a check to the Cahill campaign.
The regulator said Morrison's campaign work and his indirect financial contribution created a conflict of interest, which was not disclosed by Goldman Sachs in the relevant municipal securities offerings in violation of pay-to-play rules.
Morrison himself acknowledged this conflict in an e-mail to a campaign official, which 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."
Robert Khuzami, Director of the 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."
GS closed on Thursday higher by 1.90 percent at $115.23 on a volume of 3.9 million shares.
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by RTT Staff Writer
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