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Senior executives at Goldman Sachs in London were today severely criticised by the City regulator as it imposed a £17.5 million fine on the Wall Street banking giant for breaching three of its key rules.
The fine would have been £25 million — one of the highest imposed by the Financial Services Authority — if Goldman had not co-operated and agreed to settle at an early stage.
The London fine is dwarfed by the $550 million (£357 million) Goldman paid to the US Securities and Exchange Commission in July over its marketing of Abacus — a complicated product made up of subprime mortgage derivatives. Investors, including some who were sold the product through London, lost as much as $1 billion.
Today's fine centres on Goldman London's failure to inform the FSA about investigations by the SEC into Abacus and one of its main creators Fabrice Tourre. He moved from New York to London and became approved by the FSA in November 2008.
The SEC began its formal investigation in February 2009 and interviewed senior London staff in March and May of that year. It issued formal “Wells Notices” against Goldman and Tourre in September 2009. But Goldman did not tell the FSA about any of this until the SEC went public in April this year.
Margaret Cole, the FSA's head of enforcement and financial crime, said: “We have repeatedly stressed the importance of firms self-reporting regulatory issues to the FSA in a timely way. GSI [the bank's London arm] 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.”
She added: “The fact that senior business people at GSI in London knew about Mr Tourre's Wells Notice, but did not consider the obvious regulatory implications is very disappointing. Had GSI complied with its UK obligations, the outcome for GSI would have been very different.”
In its final notice against Goldman the FSA said it found its failings “particularly serious” because “a number of senior managers and other personnel were aware of certain aspects of the SEC investigation but took no steps to ensure that Goldman's compliance [department] was made aware.”
It also said that Tourre was in effect allowed to continue working in London for seven months even thought the SEC had served notice that it would take enforcement action against him.
Tourre sent emails to his French girlfriend saying he was “the only potential survivor: Fabulous Fab”, and, “standing in the middle of all these complex, exotic trades he created without necessarily understanding all of the implications of those monstrosities!!!” He is on paid leave from the firm and denies the SEC's allegations against him.
The FSA's Cole said: “This penalty should send a message that large institutions must have UK reporting obligations at the front of their mind.”
In a terse one-line statement Goldman said: “We're pleased this matter is resolved.”
Reader views (4)
The Fabrice Tourret issue is not a minor glitch. There are very specific requirements for a person to be registered by the FSA as a "fit" person. It is inconceivable that this person could be registered in London without his SEC records being referenced on transfer? It certainly happens when you are checked out in the USA for selling securities or life insurance! Goldman checks out anyone who joins them with a fine tooth comb. The FSA conclusion is utter rubbish. There had to be a deliberate concealment of the Abacus involvementby senior management at GS, this was no "systems failure"!!
GS paid a $550 million fine to the SEC, the FSA fine is chump change.
The message here is that they appear to have deliberately failed to disclose Tourret's investigation hoping the FSA would not pick it up!
- James MacLeod Ritchie, Oyster Bay Cove, 09/09/2010 19:12
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Looks like the FSA christmas box is filling up nicely.
- Mr S.Port, London, 09/09/2010 10:47
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What happens to the 20 million taken in fines do they have a big booze up with fancy girls dancing bears do they go haggis baiting ,the money from all these fines we see being levied against companies where does it go ?
- dan henry, glasgow scotland, 09/09/2010 10:04
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£20 million, they trade that amount by the hour,they must be laughing all the way to the Champagne bar
- ray, London, 09/09/2010 09:28
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