Posts tagged “prime broker”

No matter how hard it tries, Goldman Sachs in not being allowed to forget how it and trader Fabrice Tourre defrauded customers.  In the latest round of infamy, the huge investment bank/prime broker was fined £17.5m for forgetting to inform the UK’s Financial Services Authority that it was under investigation by US authorities.

The FSA said on Thursday that Goldman’s US arm failed to share critical information with the bank’s compliance department in London about a US investigation of subprime mortgage products for more than 18 months.

That omission meant Goldman failed to notify the FSA that it and trader Fabrice Tourre had been warned in September 2009 by the US Securities and Exchange Commission that they were likely to face civil fraud charges. At the time, Mr Tourre was working in London in a function that required FSA approval.

Fabrice Tourre

The SEC filed charges in April 2010 and settled with Goldman for $550m in July. Mr. Tourre is still fighting allegations that he misled investors in a complex mortgage-backed security known as Abacus.

The FSA said that Goldman officials could have considered notifying them about the probe as early as February 2009 and “at the latest” when the bank received the so-called Wells notice from the SEC warning of potential charges.

Margaret Cole, the FSA’s managing director of enforcement and financial crime, preached: “We have repeatedly stressed the importance of firms self-reporting regulatory issues to the FSA in a timely way. GSI [Goldman’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 of an authorized firm.

“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,” she pontificated.

Fiona Laffan, Goldman spokeswoman, squirmed: “We are pleased the matter is resolved.” Goldman received a discount for settling the case at an early stage. Without it, the fine would have been £25m.

Mr Tourre’s attorney clammed up when he received a request for comment.

The fine is the second-largest in FSA history. JPMorgan set the record in June when it paid £33.3m for failing to keep client money in separate accounts.

The FSA opened its investigation into Goldman in April after the SEC filed its charges. The SEC claimed Goldman had failed to disclose that a hedge fund that was betting against the security had selected some of the mortgage loans included in the portfolio, costing investors as much as $1billion.

Goldman, the world’s best-known investment bank, has seen its reputation tarnished in recent months as questions continue to swirl over whether it favored the interests of some clients at the expense of others during the financial crisis.

The bank’s business model is also under pressure amid volatile markets and regulatory reforms that have forced it to shut some of its highly profitable “proprietary” trading operations.

On Wednesday it emerged that KKR, the private equity firm, is in early talks with individuals in Goldman Sachs’ proprietary trading group that could lead to the hiring of a number of Goldman’s key people.

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