finra's settlement with goldman sachs

8/8/2019 Finra's Settlement With Goldman Sachs

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FINANCIAL INDUSTRY REGULATORY AUTHORITYLETTER OF ACCEPTANCE, WAIVER AND CONSENTNO . 2010 022 4738 -01

TO: Department of EnforcementFinancial Industiy Regulatory Authority (FIN RA)RE: Goldman, Sachs & Co. (BD No . 361)

RespondentPursuant to FINRA Rule 9216 of FINRA S Code of Procedure, Respondent Goldman, Sachs &Co. (Goldman, the Finn or Respondent) submits this Letter of Acceptance, Waiver andConsent (AWC) for the purpose of proposing a settlement of the alleged rule violationsdescribed below. This AWC is submitted on the condition that, if accepted, FINRA will notbring any future actions against Respondent alleging violations based on the same factualfindings described herein.

I.ACCEPTANCE AND CONSENT

A. Respondent hereby accepts and consents, without admitting or denying thefindings, and so lely for the purposes of this proceeding and any other proceedingbrought by or on behalf of FINRA, or to which FINRA is a party, prior to ahearing and without an adjudication of any issue of law or fac t, to the entry of thefollowing findings by FINRA:

BACKGROUNDGoldman has been a member of FINRA since 1936. The Firm, headquartered inNew York City, has approximately 7,500 registered representatives operatingfrom a total of 18 branch offices. Goldman is a wholly owned subsidiary of TheGoldman Sachs Group, Inc., a global investment banking, securities andinvestmentmanagement firm.Th e Finn has no relevant formal disciplinary history with the Securities andExchange Commission, any self-regulatory organization or any state securitiesregulator.


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OVERVIEWBetween November 2009 and May 2010 (the Relevan t Period) , in two ins tancesGoldm an fa iled to upda te Uniform Applica tio ns for Securit ies Indus tryRegistr ation or Transfer (Fo rms U4) to dis close invest igations when it wasrequired to do so by FINRA By-Law s, Artic le V, Section 2(c ). in the firstins tance, Goldman failed to file an amendment to Form U4 to disc lose tha tFabrice Tourre had received a W ells Notic e from the Securities and ExchangeCommiss ion (S EC) in connection with t he agencys investigatio n of an offeringof a synthetic co llat erali zed debt ob liga tio n (CDO) called ABACUS 2007-AC I(Abacus). In the second ins tance, Goldm an failed to amend another employ eesForm U4 to disclose tha t he had rec eived a Wells No tice.These failures occurre d because during the Re levant Period Go ldman did not haveadequate superv isory procedures and system s in place to ensure that theregist ration s g roup within its globa l compliance div ision receiv ed prompt no ticethat a regis tered person was the subjec t of an investigation, as that term is usedin Form U4, so tha t the uni t could ensure tha t t he Forms U4 were amendedaccordin gly.Goldm ans failure to comply with its FINRA By-Law Article V reportingob liga tion s impacted FINRA s and other securities regu lato rs abilities todischarge their regist ra tion, exam ina tion, and oversigh t dut ies , as well asinv estors and other ma rket par ticipants ab iliti es to assess the individualsbackg rounds through FINRA s public disclosure program, BrokerCheck .By reason of the fo rego ing, Go ldman violated NASD Conduct Ru le 3010 andFINRA Ru le 2010.1 Goldman consents to the imposition of a censure and a fineof $650,000, and an undertaking that it wi ll certify that it has conducte d a reviewof its procedures and systems concern ing Form U4 amendments and compliancewith FINRA By -Laws, Artic le V, Sect ion 2 (c) and implem ented any necessaryrevisions.

FACTS AND VIOLATIVE CONDUCTBackground

Fo rm U4 is use d to reg ist er associated persons of broker-dealers with theappropria te jurisdiction(s) and/or self regulatory organizatio n( s) (SROs).Disclosu res made in response to the questions on Fo rm U4 play a vital role in thesecurit ies industry. Th e disclosures are used to determine and monitor the fitnessof securi tie s pro fess ionals . Timely, truthftil, and complete answe rs on Form U4are essent ial to meaningflul regu lation.

1 NAS D C onduc t Ru le 2110 bec ame FIN RA Rule 201 0 effec tive D ece mb er 15, 2008.2


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Interna tiona l (GSI) affiliate, tes tified at t he SEC in Washington, D.C. inconnection wi th the Abacus investigation.Tourres counsel received a written Wells No tice, dated September 28, 2009,stating that the staff of th e SEC intended to recommend tha t the SEC file a civilac tion and ins titute a publ ic admin istrative proceed ing against Tourre alle ging thathe vio lated Section 17(a) of the Securit ies Act of 1933, Section 10(b) of theSe curit ies Exchange Ac t of 1934 and Rule lOb-5 thereunder in connection withthe CDO offe ring . Tourre wa s registered with F INRA th rough Goldman at thetim e he re ceive d the Wells Notic e. Tourres counsel immediately informedGoldman s Legal Departm ent tha t the Wells Notic e had been received.Tourre has been registered with FINRA as a genera l securities represen tat ive(GSR ) thro ugh Go ldm an since 2001 . Question 14G of the Form U4 Go ldmanfiled on his behalf asks:

Have you been notified, in writing, that y ou are now the subjec t of any:(1)(2) investigation tha t cou ld resul t in a yes answer to any part of 14A, B, C, Dor E? (If yes, comple te the Inves tigation Disclos ure Reportin g Page.)

Investigation is defined in Form U4 to includ e SEC, CFTC, FINR.A, or NYSERegulation investigations when a written Wells notice has been given . A yesanswer to que stions 1 4C or 1 4E would indicate, among other thing s, that the SEC,CFTC , or an SRO has found the applic ant to have been involved in a violation ofits regulations or statute s.Thus, rece ip t of a written Wells not ice clearly triggers a reporting oblig ation on apersons Form U4. Desp ite the fact that the re porting obligation clearl y exist ed,Go ldman failed to ensure tha t Tourres Form U4 was am ended with in 30 days ofits know ledge of the Wells Notice, as requir ed under the By -Laws. Tourres FormU4 was not amended un til May 3, 2010, more than seven months after Goldmanlearne d of the Wells Notice, and on ly af ter the SEC filed its Complain t aga instGo ldm an and Tourre on Ap ril 16, 2010 (resu lting in extensivenews coverage).

A Second FailureGo ldmans failu re vis- -v is Tourres Form U4 wa s no t an isolated inc ident.Another Go ldman employee in New York also received a written Wells No ticedurin g the Relevant Period, ind icating that the staff of a regulatory agency hadmade a pre lim inary de term ina tion to recomm end tha t disciplinary action be

2 GS1 is a London-based wholly-owned subsidiary of The Goldman Sachs Group, Inc. GSI is not a F INRA memberfinn. in a settlement with the United Kingdoms Financial Services Authority announced on September 9, 2010,GSI paid a substantial fine in connection with the FSAs finding that GSI had failed to have proper and effectivesystems and controls in place to ensure that its Compliance department was apprised of information about t he SECsinvestigation ofGoldman and Tourre.Goldman agreed to settle the SECs action in July 2010.

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brought aga inst him . The employee was re gistered wi th FINRA through Goldm anat the time he receive d the Wells Notice. In this insta nce , too, Goldm an s LegalDepartment was promptly informed that a Wells Notice had been receiv ed.Go ldman, however, did not en sure tha t the Form U4 wa s am ended within 30 daysof its knowl edge of the Wells Notice, as requ ired under the By-Laws.

Superv isory ViolationsGlobal Complia nce is the Division within Goldman that advises and assists theFirm s bus inesses to ensure compliance with a pplicable laws and regu lations.Global Comphance is organized broadly into divisional compliance groups thatare embedded in t he businesses they support, as well as centralized complia ncegroups with firm-w ide respons ibilities, one of whic h is Global Complianc eEmployee Services (GC ES). GCES manages registratio ns, outside interests andprivate investments. The Regis trations Group wi thin GCES is responsible forfiling initial Fo rms U4 and amendments thereto.Fo r GCES to fulfill its responsibility, oth er sou rces with in Goldm an must identifSand communicate repo rtable events to GCES . In the two ins tan ces here , GCESwas no t time ly informed of the Wells No tices. In the case of Tourre, knowledgethat he had received a Wells Notice wa s limited to a small circle of people insidethe firm, including certain senior staff and attorneys, who treated the informationas confidential and shared it only on a need to know basis. The fact that a WellsNotice had been received was not communicated to GCES, and Tourres Fo rm U4was not timely amended.The divisional compliance personnel embedded in the business units whereToui-re worked in London (for GSI) and where the other individual worked inNew York (for Goldman) were not informed when the firm learned about theWells No tices.During the Relev ant Period , Goldman did not have in place an effective procedureto ensure that GCES was promptl y notified about Wells not ices affectingreg istered persons. Instead , Goldman relied on ind ividu als who were informed ofthe occurrence of a Form U4 reporta ble event to recogn ize the ne ed to tell GCES ,and to take the initiative to do so. Tha t system failed when Tourre r eceived aWell s Noti ce on September 28, 2009 and Goldman s Leg al D epartm ent was sonotified. It also faile d in the other ins tance at issue here.Goldmans written supe rv isory proc edures, divis iona l supervisory manuals andpolici es in eff ect du ring the Relevan t Period were also inadequa te. Nowhere dothe y men tion Wells notices spec ifica lly . Moreove r, in several places theprocedures sta te that disclos ure is required when an employee is fou nd to havevio lated any provision of a securities law or regulation, or is named as a defendantor respondent in a regulatory proceed ing or civ il litigation, but are sile nt


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regarding being the subject of a regu latory investigation, which could result in ayes answer to any pa rt of qu estio ns 14A, B, C, D, or E of Form U4. This createsthe mi sta ke n impression that, when a reg istered person is investigated by the SECor an SRO such as FINRA , the tr igg eri ng event requirin g a Form U4 amendmentoccurs , if at all , at a stage sig nific an tly lat er than wh en the representative receivesa Wells notice .By re as on of the foregoing , Goldman viol ated NASD Conduct Ru le 3010 andFIN R A Rule 2010.

B. Respondent also consents to the imposition of the foll ow ing sanctio ns: a censure; and a tine of $650,0 00. Goldman shall co mpl y with the following undertakings withinthe time perio ds specif ied (unless oth erw ise ex tended byFINRA staf f):

1) With in 90 calendar days of the issuance of th is AWC, an offic er(or equi valen t) of Goldman will certii to FINRA in writing that ithas (a) com pleted a rev iew of its su perv isor y procedures andsystems concern ing Form U4 amendments and com pliance withFINRA By -Laws, Ar ticle V, Section 2 (c), an d (b) implementedne ces sary revisions to such procedures and systems. Thecertifi catio n shall a lso describe the specific actions tak en by thefirm , includ ing the systems and procedures developed andimplemen ted.

Respondent agrees to pay the monetary sanction upon notic e that th is AWC hasbeen acce pte d and that such pa ymen t is due and payable. Re spo nden t hassubmitted an Ele ct io n of Pa ym ent form showi ng the m etho d by w hich it proposesto pa y the fine imposed .Respondent speci fical ly and volu ntarily waiv es any rig ht to claim that it is unableto pay, now or at any tim e hereafte r, the moneta ry sanction imposed in thismatter.The sanc tio ns imposed herein shall be eff ectiv e on a date set by FINRA staff.

II.WAIVER OF PROCEDURAL RIGHTS

Respondent specifically and vo lun tarily w aive s the following rights granted under FINRAsCode of Procedure:


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A. To have a Complai nt issu ed specifing the alle gations against it;B. To be no tified of the Complaint and have the opportunity to answer the

alleg ations in writing;C. To defen d against the al lega tion s in a discip lin ary hear ing before a hearing pane l,

to have a writte n record of the hearing made and to have a writ ten decision issued;and

D. To appeal any such decisio n to the National Adjudicato ry Counc il (NAC ) andthen to the U.S. Securities and Ex change Commission and a U.S. Court ofAppeals .

Further, Responden t specif icall y and voluntar ily waives any right to claim bias or prejudgmentof the Gene ral Counse l, the NAC, or any member of the NAC, in connection with such person sor bodys pa rticipation in discussions regarding the term s and cond ition s of this AWC, or otherconsideratio n of this AWC, including accep tance or re jec tio n of thi s AWC.Respondent further specific al ly and volun tarily waive s any righ t to claim that a perso n violatedthe ex pa rte prohibitions of FINRA Rule 9143 or the separatio n of function s proh ib itions ofFINRA Rule 9144, in connec tio n wi th such persons or bodys part ic ipation in discuss ionsregarding the term s and condi tion s of this AWC, or other con side ra tion of this AWC, incLudingits acceptanc e or rejection.

III.OTHER MATTERS

Resp onden t un derstand s that:A. Su bmission of thi s AWC is voluntary and will no t reso lve th is matter un less anduntil it has been rev iewe d and accepted by the NAC, a Review Subcommitt ee of

the NAC, or the Office of Disciplinary Affai rs (ODA), pursuant to FINRA Rule9216;

B. If this AWC is not accepted, its subm ission will no t be used as ev idence to proveany of the al lega tio ns again st Respondent; and

C. If accepted:1. this AWC will becom e part of Respondents permanent disciplinary

record and may be cons idered in any future act ions brought by FINRA orany other regulator against it;


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2. th is AWC wil l be made available through FINRAs public disclosureprogram in response to public inquiries about Respondents disciplinaryrecord;

3. FINRA may make a public announcement concerning this agreement andthe subject matter thereof in accordance with FINR.A Rule 8313; and

4. Respondent may not ta ke a ny action or make or permit to be made anypublic statement, including in regulatory filings or otherwise, denying,directly or indirectly, any finding in t hi s AWC or create the impressionthat th e AWC is without factual basis. Respondent may not take anyposition in any proceeding brought by or on behalf of FINRA, or to whichFINR.A is a party, that is inconsistent with any part of this AWC. Nothingin this provision affects Respondents right to take legal or factualpositions in litigation or other legal proceedings in which FINRA is not aparty.

D. Respondent may attach a Corrective Action Statement to th is AWC th at is astatement of demonstrable corrective steps taken to prevent future misconduct.Respondent understands that it may not deny the charges or make any statementthat is inconsistent with the AWC in this Statement. This Statement does notconstitute factual or legal findings by F INRA , nor does it reflect the views ofFINRA or its staff.

The undersigned, on behalf of Goldman, certifies that a person duly authorized to a ct on itsbehalf has read and understand all of the provisions of this AWC and has been given a fullopportunity to ask questions about it; that Goldman has agreed to its provisions voluntarily; andthat no offer, threat, inducement, or promise of any kind, other than the t erms set forth herein andthe prospect of avoiding the issuance of a Complaint, has been made to induce the Firm tosubmit it.i9c1o,ie /t, JO,O Goldman, Sachs & Co.Date (mm/dd/yyyy) Respondent

Print Name:_________________Title: 1:)K44b:. 4._(


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Reviewed by:

McC tche n LLP399 ark AvenueNew York, NY 10022-4689

Accepted by FINRA :

DateSigned on behalf of theDirector of ODA, by delegate d a uthority

M.Associate ViceFINRADepa rtment of EnforcementOne Liberty PlazaNew York, NY 10006(21 2) 858-47 62 (T); (212) 858-4 770 (F)


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ELECTION OF PAYMENT FORM

Respondent intends to pay the f ine set forth in the attached Letter of Acceptance, Waiverand Consent by the following method (check one):[ ] A personal, business or bank check for the full amount;[ Wire transfer;[ I Credit card authorization for the ful l amount ; or

] The installment payment plan (only if approved by FINRA staff and the Office ofDisciplinary Affairs).

Respectfl.illy submitted,M1 o/tate (mmlddlyyyy) Goldman, Sachs & Co.Respondent

By:

Only Mastercard, Visa and American Express are accepted for payment by credit card. If this option is chosen,the appropriate forms will be mailed to you, with an invoice, by FINRAs Finance Department. Do not include yourcredi t card number on this form.2 The installment payment plan is only available fo r fines of $5,000 or more. Certain interest payments, minimuminitial and monthly payments, and other requirements apply. You must discuss these terms with FINRA staffpriorto requesting this method of payment.

finra's settlement with goldman sachs

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