Britain’s financial regulator has fined Goldman Sachs 17.5m pounds ($27m), the second-largest fine in UK history, for failing to notify British authorities about an investigation in the United States about the investment banking firm.
The Financial Services Authority began probing Goldman in April, after the US Securities and Exchange Commission filed civil fraud charges against the firm for allegedly misleading buyers of complex mortgage-related investments in 2007.
Goldman settled the charges in mid-July by agreeing to pay $550m, the largest penalty against a Wall Street firm in the SEC’s history.
“This penalty should send a message, particularly to the senior management of large institutions, of the need to have their firm’s UK reporting obligations at the forefront of their minds,” said Margaret Cole, the FSA’s managing director of enforcement and financial crime.
It was the second-largest fine ever imposed by the FSA, eclipsed only by a 33m pounds fine announced in June against JP Morgan.
Two European banks lost nearly $1bn on the mortgage securities deal. Goldman failed to tell the FSA that the SEC had begun investigating the transaction; the agency’s probe singled out a London-based Goldman executive, Fabrice Tourre.
Tourre was promoted and moved to the company’s London office to become executive director of Goldman Sachs International (GSI) in late 2008. He has denied any wrongdoing and has asked a federal court to throw out the SEC case.
The FSA granted Goldman a 30 per cent discount from the maximum possible fine because it co-operated and agreed to settle at an early stage.
“GSI 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,” Cole said.
The SEC charges were the most significant legal action related to the mortgage meltdown that plunged the United States into recession.
Goldman neither admitted nor denied legal wrongdoing in agreeing to the settlement with the SEC.
However, it acknowledged that its marketing materials for the investment deal at the centre of the charges omitted key information for buyers.