When investment bankers and brokerage firms are large donors or fundraisers for a political candidates, you know that the stage can be set for a conflict of interest. That certainly does not apply to just the finance sector. What about manufacturers seeking looser regulations, defense contractors, miners, and on and on?
Today is a story regarding the Goldman Sachs Group Inc. (NYSE: GS) and the Securities and Exchange Commission. The SEC charged Goldman Sachs and one of its former investment bankers with "pay-to-play" violations involving undisclosed campaign contributions to then-Massachusetts state treasurer Timothy P. Cahill while he was a candidate for governor.
These pay-to-play schemes cover campaign contributions or other payments made in an attempt to influence lucrative public contracts for securities underwriting business. This marks the first SEC enforcement action for pay-to-play violations involving what is called "in-kind" non-cash contributions to a political campaign.
The SEC charge said that Neil M.M. 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. It states:
Morrison also was substantially engaged in working on Cahill's political campaigns from November 2008 to October 2010. Morrison at times conducted campaign activities from the Goldman Sachs office during work hours and using the firm's phones and e-mail. Morrison's use of Goldman Sachs work time and resources for campaign activities constituted valuable in-kind campaign contributions to Cahill that were 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. Nevertheless, Goldman Sachs subsequently participated in 30 prohibited underwritings with Massachusetts issuers and earned more than $7.5 million in underwriting fees.
The SEC's case against Morrison continues, but today's news out from the SEC is that Goldman Sachs has agreed to settle the charges by paying $7,558,942 in disgorgement, $670,033 in prejudgment interest, and a $3.75 million penalty. The SEC said that this is the largest fine ever imposed by the SEC for Municipal Securities Rulemaking Board pay-to-play violations. This enforcement action was coordinated with a related action filed by the Massachusetts Attorney General against Goldman Sachs.
The move is not one which likely move the needle for a company as large as Goldman Sachs. Still, a record fine is one to watch. In the history of underwriting and tight ties to industry it is hard to imagine that this is a record fine if you consider all of the dealings that have taken place throughout history.
FULL SEC FEATURE
JON C. OGG
Filed under: 24/7 Wall St. Wire, Banking & Finance, Corporate Governance, Law, Politics, Regulation Tagged: GS