On September 27, 2012, Goldman Sachs agreed to pay $12 million to settle claims with the Securities and Exchange Commission (“SEC”) alleging that one of its employees engaged in a pay-to-play scheme. The scheme, as described in the SEC filings, stated that the employee, Neil Morrison, provided cash and in-kind contributions to the gubernatorial campaign of former Massachusetts State Treasurer, Timothy Cahill, as the company was being considered for municipal underwriting business in the Treasurer’s office.

Without admitting or denying the claims made by the SEC, Goldman Sachs agreed to pay a $3.75 million penalty, $7.6 million in disgorgement, and $670,000 in prejudgment interest to settle the SEC’s investigation. The first-of-its-kind administrative action against Goldman Sachs accompanied separate administrative proceedings against Morrison, who allegedly drafted speeches for Cahill, solicited contributions to Cahill’s campaign, and was involved in making personnel decisions - all while actively pursuing underwriting business from Cahill’s Treasurer’s office on behalf of Goldman Sachs.

According to the findings of the SEC order against Goldman Sachs, the company failed to properly disclose Morrison activity, violating various Exchange Act requirements and Municipal Securities Rulemaking Board (“MSRB”) rules. Further, the SEC stated that Goldman Sachs did not take steps to ensure that Morrison’s contributions and campaign work were disclosed in bond offering documents. Notably, the SEC brought this action even in light of Goldman Sachs’s (a) self-disclosure, (b) training of Morrison in the MSRB rules, (c) remedial action against Morrison, and (d) full cooperation with the SEC in conducting the investigation.

With this landmark settlement, the SEC has demonstrated that it intends to use its enforcement powers to ensure that companies comply with the Exchange Act and MSRB rules that are designed to prevent pay-to-play schemes. This decision serves as notice to companies to examine their compliance with MSRB rules so that they are not caught up in similar investigations in the future.