Goldman Sachs Intl failed to tell FSA of US probe
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The FSA has fined Goldman Sachs International £17.5m for failing to tell the regulator it was under investigation in the US.
The FSA says that Goldman Sachs International failed to ensure it had adequate systems and controls in place, resulting in a failure to notify the FSA of an investigation by the Securities and Exchange Commission.
In August 2008, the SEC began investigating Goldman Sachs International’s US affiliate, Goldman Sachs & Co.
Trader Fabrice Tourre is at the centre of the SEC investigation, which looked into the alleged misselling of a complex parcel of toxic mortgages, known as Abacus, to the bank’s own clients while another client, hedge fund Paulson & Co, was shorting them.
Abacus was structured by Goldman Sachs & Co and was marketed by Goldman Sachs International in the UK to institutional investors.
In August 2008, the SEC began making enquiries of Goldman Sachs & Co regarding Abacus. Over the next year, the SEC obtained documents and witness evidence about Abacus from Goldman Sachs & Co and from London-based personnel at Goldman Sachs International.
Tourre was part of the team that structured Abacus. Later, he transferred to Goldman Sachs International in London and in November 2008 he became an FSA-approved person.
The FSA says despite the involvement of Goldman Sachs International in the marketing of Abacus and the involvement of UK-approved people in the SEC investigation, no one at Goldman Sachs & Co or Goldman Sachs International considered the potential UK regulatory implications of the SEC investigation.
Following its investigation, the SEC issued Wells notices, which indicate that it will file an enforcement action, to Goldman Sachs & Co and Tourre.
The FSA says Goldman Sachs International failed to tell the regulator that a Wells notice had been issued to Tourre, although several senior managers at Goldman Sachs International were aware of the fact.
The regulator says, as a consequence of the failure, Tourre remained approved in the UK and able to perform a controlled function for several months without further enquiry or challenge from the FSA.
Goldman Sachs International’s compliance department only became aware of the SEC investigation when, on April 16, 2010, the SEC announced it had commenced enforcement proceedings in the US courts against Goldman Sachs & Co and Tourre.
The SEC alleged they had committed serious violations of US securities law by making misleading statements and omissions in connection with the Abacus transaction.
In July 2010, the bank settled the charges with SEC for a sum of $550m. Tourre is still fighting the charges brought against him.
The FSA says as Goldman Sachs International co-operated fully and agreed to settle at an early stage, it qualified for a 30 per cent discount. Without the discount, the fine would have been £25m.
FSA managing director of enforcement and financial crime Margaret Cole says: “Goldman Sachs International did not set out to hide anything but its defective systems and controls meant that the level and quality of its communications with the FSA fell far below what we expect of an authorised firm.”
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