Thursday, September 27, 2012

Goldman to pay $12 million to settle "pay-to-play" probe

WASHINGTON (Reuters) - Goldman Sachs Group Inc will pay about $12 million to settle charges it violated "pay-to-play" rules, in a case involving campaign contributions to ex-Massachusetts state treasurer, Timothy Cahill, who was a candidate for governor in the state, U.S. securities regulators said on Thursday.

Neil Morrison, a former vice president in Goldman's Boston office, worked extensively on Cahill's 2010 campaign while also soliciting underwriting business from the Massachusetts treasurer's office, the Securities and Exchange Commission said.

Pay-to-play refers to cash or other contributions made to officials to influence the award of lucrative public contracts.

In what the SEC described as its first "pay-to-play" case involving contributions other than cash, Goldman settled without admitting or denying the charges.

The SEC also charged Morrison, and the case against him continues.

A Goldman spokesman, Michael DuVally, said in a statement that the firm had detected Morrison's activities, fired him, and cooperated with regulators.

"We accept responsibility for the consequences of his unauthorized actions under the terms of the settlements announced today and are pleased to resolve these investigations," DuVally said.

A lawyer for Morrison did not immediately respond to a request for comment.

The case has drawn Goldman into the legal morass that has surrounded Cahill since he lost his gubernatorial bid to incumbent Deval Patrick.

In April, Cahill was indicted on criminal public corruption charges for allegedly using the state's taxpayer-funded lottery advertising budget to boost his sagging campaign.

An attorney for Cahill, Jeffrey Denner, said he had not reviewed the SEC documents, and would have no comment since the order did not directly name Cahill as a defendant.


The case describes how Morrison conducted campaign activities for Cahill, including fundraising, drafting speeches, and speaking to reporters, and how some of this work was done from Goldman's offices during business hours.

During the 13 months through October 2010, Morrison sent at least 364 campaign-related emails using his Goldman Sachs email account.

The campaign work gave Morrison access to Cahill and his staff, who provided him internal information about the underwriter selection process, the SEC said.

Morrison also directly discussed his campaign work in relation to securing business for Goldman Sachs in emails, according to SEC documents.

"From my standpoint as an advisor/consultant/friend, I am saying, PLEASE don't give these (underwriter) slots away willy-nilly," Morrison wrote in one email to an official in Cahill's office. "You are in the fight of your lives and need to reward loyalty and encourage friendship."

That work also disqualified Goldman from bidding for municipal underwriting business with certain issuers in the state. But Goldman went on to participate in 30 prohibited underwritings, earning it more than $7.5 million in fees, the SEC said.

Robert Khuzami, who heads the SEC's enforcement division, said in a statement: "The "pay-to-play" rules are clear: Municipal finance professionals that use their firm's resources to campaign on behalf of political candidates compromise themselves and the firms that employ them."

The SEC has undertaken a broader crackdown of "pay-to-play" practices in recent years. In 2010, it adopted new measures that target activities of investment advisers who seek out contracts to manage public pension plans and other types of investment accounts.

(Additional reporting by Karey Wutkowski; Editing by Bernadette Baum)


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