The Financial Services Authority has handed a £17.5m fine to Goldman Sachs International for failing to tell the regulator it was under investigation in the US.
The FSA began its investigation in April after the US Securities and Exchange Commission charged Goldman with misleading investors.
The regulator says that Goldman Sachs International failed to ensure it had adequate systems and controls to enable it to comply with its UK regulatory reporting obligations, it says that this resulted in a failure to notify the FSA in matters over the SEC investigation.
Trader Fabrice Tourre was accused of being at the centre of the SEC investigation into Goldman Sachs, 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. Tourre is still fighting charges brought against him by the SEC.
In August 2008, the SEC began investigating Goldman Sachs & Co, GSI’s US affiliate, regarding Abacus. The next year saw the SEC obtain documents from both the GSC and GSI. The FSA says that despite the involvement of the GSI in marketing Abacus and the involvement of UK approved people in the investigation, no one at GSC or GSI considered the potential regulatory implications for the GSI.
The FSA says Goldman also did not tell them that Fabrice Tourre was under investigation. A Wells Notice, which is an indication that from the SEC staff that the SEC file an enforcement action, was issued in September 2009, several members of GSI were aware of the fact. Tourre moved from the US to London in November 2008 whilst the investigation was ongoing, therefore falling under the FSAs remit. He was removed from the FSA register in April this year.
GSI’s compliance department only became aware of the SEC investigation when, on April 16, 2010, the SEC announced that it had commenced enforcement proceedings in the US courts against GSC and Tourre alleging that they had committed serious violations of US securities law by making misleading statements and omissions in connection with the Abacus transaction.
The bank settled the charges with SEC for a sum of $550m in July 2010.
FSA managing director of enforcement and financial crime Margaret Cole says: “We have repeatedly stressed the importance of firms self-reporting regulatory issues to the FSA in a timely way. GSI 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. The fact that senior business people at GSI in London knew about Mr Tourre’s Wells Notice, but did not consider the obvious regulatory implications for GSI is very disappointing. Had GSI complied with its UK obligations, the outcome for it would have been very different.
“This penalty should send a message – particularly to the senior management of large institutions – of the need to have their firm’s UK reporting obligations at the forefront of their minds.”
The FSA investigation found that GSI did not deliberately withhold any information from the FSA. GSI co-operated fully and agreed to settle at an early stage. In doing so it qualified for a 30 per cent discount. Without the discount the fine would have been £25m.
JPMorgan was the recipient of the largest fine given by the FSA when it paid £33.3m in July 2010 for failing to keep client money in separate accounts.