March 13, 2012 9:32 pm

Goldman fined for lack of clearing supervision

Goldman Sachs has agreed to pay $7m to the US regulator for commodities trading after allegedly failing to properly supervise a broker-dealer which used the bank’s clearing platform for more than two years.

The Commodity Futures Trading Commission said on Tuesday that Goldman agreed to pay a $5.5m civil monetary penalty after it did not “diligently supervise” an account held by an unnamed broker-dealer. Goldman also returned $1.5m it collected in fees from the customer, after providing the broker-dealer with clearing services between May 2007 and the end of 2009.

Goldman resolved the claims without admitting or denying wrongdoing, the CFTC said. The settlement will come as a relief to Goldman after the New York-based bank said last year that the CFTC could charge it with civil fraud or aiding and abetting in relation to the case, sending its shares down.

Goldman shares jumped 5.8 per cent to to $123.78 on Tuesday.

Goldman disclosed in its first-quarter regulatory filing last year that the CFTC was investigating the role of its subsidiary, Goldman Sachs Execution and Clearing, as the clearing bank for a broker-dealer supervised by the Securities and Exchange Commission.

The broker-dealer “offered memberships to investors to trade commodities in subaccounts of the broker-dealer carried by GSEC”, the CFTC said in Tuesday’s statement.

But GSEC then “failed to diligently supervise the handling of these subaccounts when it did not investigate signs of questionable conduct by the broker-dealer”, the CFTC alleged.

The “questionable” activity includes the broker-dealer distributing a statement that “falsely purported to have been issued by a non-existent GSEC affiliate”, the CFTC said. GSEC told the broker-dealer that the statement distorted the unnamed firm’s performance but then “simply” told the broker-dealer not to issue such statements, the CFTC said.

In December 2009, the broker-dealer gave Goldman a draft statement showing it had carried a $6.8m capital hole on its balance sheet since October that year.

“When registrants become aware of questionable activity, they must not simply rely on assurances from interested parties and their representatives, but instead must diligently investigate,” said the CFTC ‘s David Meister. “As this case indicates, the commission will hold registrants accountable if they fail in this regard.”

Goldman Sachs declined to comment.

Separately, the bank also confirmed on Tuesday that it had hired Jake Siewert, the former US Treasury department aide, to replace its outgoing public relations head Lucas van Praag.

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