SEC Settles Pay-to-Play Case Against Goldman Sachs and Neil Morrison for $7 million

In the Matter of Goldman, Sachs & Co., Admin. Proc. No. 3-15048; In the Matter of Neil Morrison, Admin Proc. No. 3-15049.  On September 27, 2012, the SEC announced charges against Goldman, Sachs & Co. and its former investment banker Neil Morrison for “pay-to-play” violations involving undisclosed campaign contributions to then-Massachusetts state treasurer Timothy P. Cahill while he was a candidate for governor.  A pay-to-play scheme is one where campaign contributions or other payments are made in order to influence the awarding of contracts for securities underwriting business. 

This is the SEC’s first pay-to-play case involving “in-kind” non-cash contributions to a political campaign.  Morrison was a Goldman Sachs vice president and solicited underwriting business from the Massachusetts treasurer’s office.  He was also working on Cahill’s political campaigns.  Morrison did some campaign work from the Goldman Sachs office during work hours and used firm resources such as telephones and e-mail.  Morrison’s use of Goldman Sachs work time and resources for campaign activities was an in-kind campaign contribution that disqualified Goldman Sachs from underwriting business with some Massachusetts issuers.  However, Goldman Sachs participated in numerous prohibited underwritings with Massachusetts issuers and earned more than $7.5 million in fees.

Without admitting or denying the allegations, Goldman Sachs agreed to settle the charges by paying $7,558,942 in disgorgement, $670,033 in prejudgment interest, and a $3.75 million penalty, which is the largest ever imposed by the SEC for Municipal Securities Rulemaking Board (MSRB) pay-to-play violations.  The SEC’s order against Goldman Sachs found that the firm violated Section 15B(c)(1) of the Exchange Act and MSRB Rule G-37(b), which prohibits firms from underwriting offerings for municipal issuers within two years after any contribution to an official of such issuer. The SEC’s order found that Goldman Sachs did not disclose any of the contributions on MSRB Forms G-37, and did not make or keep records of the contributions in violation of MSRB Rules G-37(e), G-8 and G-9. The order found that Goldman Sachs did not take steps to ensure that the attributed contributions or campaign work or the conflicts of interest raised by them were disclosed in the bond offering documents, in violation of MSRB Rule G-17, which requires broker-dealers to deal fairly and not engage in any deceptive, dishonest, or unfair practice. The order found that Goldman Sachs failed to effectively supervise Morrison in violation of MSRB Rule G-27.

Morrison is litigating his case.

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