FINRA fines Goldman for employees failing to disclose SEC investigations
Tacking on to the $550 million fine levied by the Securities and Exchange Commission on Wall Street investment bank Goldman Sachs, the Financial Industry Regulatory Authority is adding its own penalty of $650,000.
The fines revolve around a single structured-finance product, a synthetic collateralized debt obligation called ABACUS 2007-ACI.
More specifically, the FINRA fine stems from Goldman failing to disclose that two employees, including Abacus broker Fabrice Tourre, received formal notices from the SEC that they were under investigation.
The SEC for its part found the Abacus CDO had "key facts" and "vital information" knowingly withheld from marketing information provided to potential investors. The SEC said Goldman failed to disclose the risk potential of Abacus, as well as the role that hedge fund Paulson & Co. played in the portfolio selection process. Paulson had taken a short position against the CDO.
FINRA is the self-policing arm of the financial industry. It is independent and its investigations are well-documented and easily accessible. Using FINRA's BrokerCheck, investors can obtain free information about, and the disciplinary record of, any FINRA-registered brokerage firm. In these way, FINRA helps keep tabs on the operations of most aspects of the financial industry.
"Firms are required to update a representative's regulatory record by filing a Form U4 reporting the receipt of a Wells notice within 30 days of learning of the notice," according to FINRA's report on the Goldman fine. "In Tourre's case, his Form U4 was not amended until May 3, 2010, more than seven months after Goldman learned of his Wells Notice, and only after the SEC filed a complaint against Goldman and Tourre on April 16, 2010."
FINRA found that Goldman didn't have adequate supervision in place. The firm missed that required disclosures were not being made when registered employees received notice that they were the subject of a regulatory investigation.
Goldman's equivalent of an employee manual for its brokers didn't even mention "Wells Notices" specifically nor the need to make said disclosure when given one.
"Goldman's failures impacted the ability of FINRA and other securities regulators to discharge their registration, examination and oversight duties, and limited the ability of investors and other market participants to adequately assess [the brokers]," said James Shorris, acting chief of enforcement for FINRA.
FINRA said that Goldman is accepting the entry of this fine into its database but neither admitted nor denied the charges.
Write to Jacob Gaffney.
The author holds no relevant investments.
Don’t miss out: get HW delivered via email
- Current Chg.
- NASDAQ 3423.55 0 ^ixic
- S&P 500 1651.81 12.77 ^gspc
- Volatility Index 16.61 -0.19 ^vix
- KBW Mort. Financial Index 31.54 0.19 ^mfx
- MSCI US REIT Index 966.63 4.46 ^rmz