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Goldman agrees to $14-million fine for alleged ‘pay-to-play’

A former Goldman Sachs banker allegedly made undisclosed cash donations to the election campaign of Massachusetts state treasurer Tim Cahill (shown in a 2003 file photo).


Goldman Sachs Group Inc. has agreed to pay about $14-million (U.S.) to settle allegations it failed to disclose campaign contributions that one of its bankers allegedly made to a Massachusetts official in order to win state business.

The Securities and Exchange Commission has filed civil charges in the alleged "pay-to-play" scheme against Neil Morrison, a former banker, for allegedly campaigning for Tim Cahill, then the state Treasurer, from the bank's Boston office. He is also accused of making undisclosed cash contributions to Mr. Cahill's campaign to become governor. Before joining Goldman, Mr. Morrison served as deputy treasurer to Mr. Cahill.

Goldman earned $7.5-million in underwriting fees for state business won as a result of the contributions, the SEC alleged. Banks are prohibited under pay-to-play rules from engaging in certain municipal business within two years of a campaign contribution.

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A string of pay-to-play cases – where money or other political contributions are made by banks or investment advisers in the hope of winning lucrative government contracts – spurred the SEC to bring in rules to curtail the practice two years ago. Goldman settled with the SEC and the Massachusetts attorney-general without admitting or denying wrongdoing. The bank said: "We accept responsibility for the consequences of [Mr. Morrison's] unauthorized actions."

Mr. Morrison was fired in December 2010 and Goldman suspended any underwriting activities with the state. A lawyer for Mr. Morrison, who is fighting the SEC case, could not be reached for comment.

The SEC said the case was the first in which they had laid charges for violations of the pay-to-play rules for non-cash contributions.

"Morrison's work for Cahill's campaign during his Goldman Sachs' work hours was remarkable in its breadth," the SEC said in its order.

The SEC alleged that from July 2008 to October 2010 Mr. Morrison made both personal cash payments and in-kind contributions, including fundraising, writing campaign materials, attending Mr. Cahill's press conferences and approving the hiring of campaign personnel as well as their salaries.

Mr. Cahill was in a position to influence which banks were hired to underwrite debt for several municipalities.

During the period, according to the settlement documents, Goldman's underwriting business increased with Massachusetts, with the bank winning the lead underwriter position for three of 11 transactions it worked on for the state's Housing Finance Agency.

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Mr. Morrison allegedly explained how he won one of those assignments in an e-mail quoted in the settlement papers: "Realistically, if you really want to know, I got [chairman of Mass Housing's] son several job interviews and one of them panned out," it says.

According to regulators, Mr. Morrison allegedly knew his political activities could be a problem. In an e-mail to the communications director for the treasurer's campaign, Mr. Morrison wrote, "I am staying in banking and don't want a story that says that I am helping [Mr.] Cahill, who is giving me banking business. If that came out, I'm sure I wouldn't get any more business."

In a separate e-mail, to a deputy treasurer, Mr. Morrison wrote: "We have discussed the Build American Bond transaction and how important it is to me. You have been great keeping me up to speed. This is my No. 1 priority and most important ask. Having Goldman as the lead and getting 50 per cent of the economics would be such a home run for me." It isn't clear if Goldman won that underwriting business.

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