BRITAIN’S FINANCIAL watch- dog fined Goldman Sachs Group £17.5 million (€21.25 million) for failing to tell the regulator that it was the subject of a US probe, reviving disclosure headaches for the Wall Street powerhouse.
The fine – the biggest ever imposed in Britain – stemmed from Goldman’s troubled Abacus mortgage-security product, which was the focus of an investigation by the US Securities and Exchange Commission (SEC).
But it was not the Abacus product itself that put Goldman at odds with Britain’s Financial Services Authority (FSA). Instead, it was the firm’s failure to inform the FSA that it was facing an SEC probe.
“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 authorized firm,” FSA director Margaret Cole said.
In a terse response to the FSA fine, a Goldman Sachs spokeswoman said, “We’re pleased the matter is resolved.”
In July, Goldman agreed to pay $550 million to settle civil fraud charges over how it marketed the Abacus sub-prime mortgage product, ending months of negotiations with the SEC that rattled the bank’s clients and investors.
Goldman had known for several months that charges from the SEC were possible, but it did not report it to shareholders, regulators or clients. Its shares fell 12 per cent on April 16th, the day the SEC sued. That was seven months after the bank received a Wells Notice alerting it to potential charges.
The lack of disclosure has prompted lawsuits and investigations – and caused the bank to lose business.
Jacob Zamansky, an attorney who is representing shareholders in a class-action lawsuit against Goldman, said such suits will be bolstered by the FSA fine.
“This is not going away,” said Mr Zamansky. “I believe these regulatory actions strengthen the case of shareholders against Goldman.”
On June 16th, the largest US public pension fund, Calpers, notified Goldman that it would not use the firm in its pool of real estate investment consultants, according to a document obtained by Reuters. Calpers’s decision came after fund officials said they planned to question Goldman about its failure to disclose, when it bid for a Calpers contract, that it was facing an investigation from the SEC.
The US Financial Industry Regulatory Authority also was investigating Goldman’s failure to report the Wells Notice that it received in September regarding trader Fabrice Tourre.
Mr Tourre, a French banker, was involved in marketing the Abacus product. Mr Tourre, who had dubbed himself “Fabulous Fab”, denied allegations that he or the bank misled investors over the high-risk Abacus product.
The FSA said Goldman failed to notify it of the fact that the SEC had issued Wells Notices to the bank and to Tourre. – (Reuters)
