Industry regulators have fined Goldman Sachs $650,000 for failing to disclose that two of its brokers, including the executive accused of leading the mortgage securities deal that brought civil fraud charges against the firm, were under investigation by the government.
The Financial Industry Regulatory Authority announced the fine Tuesday, saying Goldman lacked adequate procedures to ensure that the required disclosure was made for Fabrice Tourre, a Goldman vice president. Goldman made that report in May, more than seven months after Tourre received a notice from the Securities and Exchange Commission that it was considering filing charges against him, FINRA said.
Goldman’s disclosure on Tourre also came after the SEC filed fraud charges against the Wall Street powerhouse and Tourre in April, FINRA noted.
Goldman settled the charges in July, paying a record $550 million. The case was the most significant legal action related to the mortgage meltdown that pushed the country into recession.
Goldman’s failure to disclose the information about the brokers “impacted the ability of FINRA and other securities regulators to discharge their registration, examination and oversight duties, and limited the ability of investors … to adequately assess the (two) individuals through FINRA’s public disclosure program, BrokerCheck,” James Shorris, FINRA executive vice president and acting chief of enforcement, said in a statement.
In a similar case, Britain’s financial regulator fined Goldman $27 million in September for failing to notify U.K. authorities about the SEC’s investigation. It was the second largest fine ever imposed by the Financial Services Authority.
Tourre, who was in his late 20s when the deal was made in 2007, was promoted and moved to Goldman’s London office to become executive director of Goldman Sachs International in late 2008.
Goldman neither admitted nor denied FINRA’s allegations Tuesday in agreeing to pay the fine. The firm also agreed to review its supervision procedures for disclosures and to make any needed changes.
“We’re pleased to put this matter behind us,” said Goldman spokesman Michael DuVally in New York. He declined further comment.
The second broker wasn’t named because, the regulator said, that person wasn’t named in any SEC complaints. FINRA didn’t specify whether the notice from the SEC that the second broker received also was related to the charges that Goldman misled buyers of mortgage-linked investments.
The SEC had alleged in that case that Goldman sold mortgage investments without telling buyers that the securities had been crafted with input from a client betting on them to fail. The securities cost two European banks close to $1 billion while helping Goldman client Paulson & Co. capitalize on the housing bust, the SEC said in the charges filed in April.
Goldman acknowledged in the settlement that its marketing materials for the investment deal omitted key information for buyers.
But the firm didn’t admit legal wrongdoing. Goldman did agree to change its review and approval of sales of certain mortgage securities, and to do more education and training of employees in that area.
The SEC’s case continues against Tourre. The agency said Tourre marketed the investment that was designed to lose value. In a January 2007 e-mail, Tourre famously called himself “The fabulous Fab – standing in the middle of all these complex — exotic trades he created.”
Tourre has asked a federal court in Manhattan to throw out the case. He denies that he made any materially misleading statements or omissions or behaved wrongly in connection with the complex securities linked to risky mortgages.
