In July, Goldman Sachs settled the SEC's fraud lawsuit regarding how Sachs marketed a collateralized debt obligation (CDO) for $550 million. Goldman Sachs failed to report the investigation to U.K. regulators and was fined today by The Financial Services Authority for failure to do so, according to a statement from the FSA. For cooperating, Goldman Sachs qualifies for the for the agency’s 30 percent discount.
Margaret Cole, the FSA enforcement chief,had this to say, “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,”
In April, the SEC sued Goldman Sachs and its employee Fabrice Tourre alleging that the firm intentionally misled investors in a collateralized debt obligation (CDO) that was linked to subprime mortgages. Additionally, the FSA said it would launch an investigation into Goldman Sachs International of London after learning that the SEC had filed its lawsuit. The FSA was asked to investigate by Gordon Brown, the British prime minister at the time and was looking towards a May election.
In 2007, Goldman Sachs created and sold CDO's as the U.S. housing market began to stumble and falter. According to an SEC statement made on April 16, they did so without disclosing to investors that the that hedge fund Paulson & Co. had helped to choose the underlying securities and had bet against the investment vehicles. Collateralized debt obligations or CDOs are accumulations of assets like mortgage bonds that have been packaged into new securities.
Tourre Remains an Employee
Goldman Sachs spokeswoman Fiona Laffan remarked, "We’re pleased the matter is resolved," following the FSA announcement, and that Tourre “remains an employee on paid leave,”.
The SEC spent close to a year acquiring witness testimony and documents about Abacus, the name given the CDO by Sachs. The commission even went so far as to interview Goldman Sachs London-based employees. The SEC then informed Tourre and Goldman Sachs that they were proceeding with an enforcement action. However, according to the FSA the bank’s compliance department in London learned of the SEC investigation only after the SEC had filed the lawsuit this year.
This will be the second-largest put forth by the FSA. The largest fine received from the FSA was JPMorgan Chase & Co. in June after its London division was fined 33.3 million pounds for not segregating client's money properly from the firm’s own accounts.
The U.S. settlement with Goldman Sachs includes a $300 million fine as well as $250 million in restitution to be paid to investors. The fine and penalty are the largest ever imposed by the SEC against a Wall Street firm. Goldman Sachs did not admit or deny wrongdoing, but instead acknowledged they had made a “mistake” and acknowledged that the marketing materials created for the CDOs had “incomplete information,” according to the SEC.
Tourre's FSA authorization was suspended in April at the banks request and he remains a defendant in the U.S. case. The SEC allegations are in relation to when he worked in New York.
