The ABACUS deal has become the one that just will not go away for Goldman Sachs. First, the deal became the predicate for an SEC enforcement action against the pillar of Wall Street and one of its employees, Fabrice Tourre. That high profile case resolved with an even higher profile settlement in which untarnished Goldman consented to the entry of a fraud injunction. To make matters worse the firm agreed to pay the largest civil penalty ever levied against a Wall Street bank, $535 million (here).
Next, U.K. regulator the Financial Services Authority concluded that Goldman Sachs International had violated its rules in connection with the SEC action based on the ABACUS deal (here). Specifically, Goldman failed to tell the FSA that it had received a Wells Notice from the SEC. That violated FSA rules which require that the firm conduct its business with due skill, care and diligence. It also violated the requirement that the firm deal with its regulator in an open and cooperative fashion. More adverse publicity and another fine, this time for $26 million. (The firm did receive a 30% discount for cooperating with the FSA investigation).
Now, Goldman will be required to pay a fine to FINRA. Again, the firm failed to tell a regulator about the Wells notices. Specifically, FINRA found that Goldman failed to disclose that two of its registered representatives, including Mr. Tourre, had received Wells notices from the SEC. Mr. Tourre’s notice was based on the ABACUS transaction at the center of the SEC’s enforcement action in which he is a defendant. 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.
FINRA also concluded that Goldman does not have adequate supervisory procedures and systems in place to ensure proper disclosure. Its written supervisory procedures, manuals and policies fail to mention “Wells Notices.” More adverse publicity and another fine, this time for $650,000.
Goldman can afford to pay the fines. The firm’s reputation is ultimately what is most important. It is that reputation which makes it an icon on Wall Street and brings clients to the firm. Repeatedly being chastised by the regulators soils that image. It is more of a sanction than the monitory penalties. And, it is not over. The SEC enforcement action against Mr. Tourre is in discovery and heading for trial.