Goldman Sachs Withdraws From Massachusetts Underwriting Teams
Goldman Sachs Group Inc. (GS) asked to be removed from two state underwriting teams in Massachusetts after Neil Morrison, the firm’s Boston-based public-finance banker, helped Treasurer Tim Cahill’s failed run for governor.
Goldman Sachs, the world’s most profitable investment bank, has asked to be excluded from managing bond sales for the Massachusetts Bay Transportation Authority and Massachusetts Housing Finance Agency since October, according to state officials. The New York-based firm has been senior banker on about $7 billion of Massachusetts and agency bonds since 2001 and last was hired to sell securities for the government in June, according to data compiled by Bloomberg.
Morrison, 36, was an unpaid adviser to Cahill in his run for governor, according to Juli Sweeney, a campaign spokeswoman. The banker “is no longer working for the firm,” Michael DuVally, a Goldman Sachs spokesman, said yesterday. He wouldn’t comment on the withdrawals from Massachusetts bond-sale teams.
Public-finance bankers are restricted from making political contributions to an official of state and local issuers, which includes a limit on volunteer help, according to industry regulations. If bankers run afoul of the so-called pay-to-play rules, a firm can be banned for two years from underwriting bond offerings that the public official oversees or would control by winning election.
They can give as much as $250 to a candidate in each election without triggering the ban if they are eligible to vote for the public official, the rule says.
‘Matter of Minutes’
“It’s the time commitment,” said Christopher ‘Kit’ Taylor, the former executive director of the Municipal Securities Rulemaking Board, which oversees the industry. “If he was doing any of this on company time, he’s going to go over the $250 limit in a matter of minutes.”
Lloyd Blankfein, Goldman Sachs’s chief executive officer, created a committee to review the bank’s business standards in May after the U.S. Securities and Exchange Commission sued the firm for fraud in April over the sale of a mortgage-linked investment in 2007. In July, the bank paid $550 million to settle the suit and in September it began a national advertising campaign to repair its reputation. The company denied any wrongdoing.
Morrison said he is “still employed at Goldman” in an e-mail sent from a personal account on Dec. 14. He said he needed the firm’s permission to comment further.
Regulatory filings last updated yesterday listed Morrison as a Goldman Sachs employee. A first deputy treasurer when he left Cahill’s office in 2007, Morrison joined the bank in July 2008 from Zurich-based UBS AG. (UBSN)
So many of the New York bank’s executives are former public employees or have taken high-level government jobs that it earned the nickname “Government Sachs.” Yesterday, the firm said Kathleen Brown, its managing director in charge of winning municipal-finance business on the West Coast, would move to a new job in Chicago after her brother, Jerry Brown, won election as California’s next governor.
Cahill, 52, ran as an independent this year against Democratic incumbent Deval Patrick and Republican Charlie Baker. Paul Loscocco, Cahill’s running mate, quit the campaign before the November election, citing differences over negative advertising.
A Top Adviser
Loscocco said Morrison, “a former aide now at Goldman Sachs,” was serving as a “top political adviser” to Cahill and coordinating ads, according to an Oct. 8 statement. Loscocco didn’t return calls seeking additional comment.
Morrison, in a separate e-mail yesterday, referred questions about his “nonexistent formal role with the Cahill committee” to the campaign.
“Morrison was not employed by the campaign and served only as an informal adviser,” Sweeney, the spokeswoman, said in an e-mailed statement.
The banker was also identified as a campaign “political adviser” in a response to a lawsuit the Cahill campaign brought in October against Strategic National Consulting LLC, the Grand Rapids, Michigan, firm it hired. Copies of e-mails in documents on file in the case show Morrison was communicating with the consultants on behalf of Cahill.
“This is to notify you that the Cahill campaign (‘the campaign’) accepts your offer,” Morrison wrote in one of the e-mails in the documents. It was sent from a personal account to John Yob, Strategic National’s chief executive officer, and John Weaver, another paid Cahill adviser, on Aug. 13, 2010, a Friday, at 3:31 p.m., regarding negotiations to lower their fees.
“On behalf of the treasurer I want to let you know that we are in receipt of this proposal and we are very appreciative of the obvious good faith effort that you have put forward,” Morrison said at 5:24 p.m. on Aug. 11 in an e-mail about fees. “I will speak to Treasurer Cahill and get back to you with his thoughts.”
Yob didn’t return calls seeking comment. Weaver declined to comment when reached by telephone.
Morrison joined the treasurer’s office in January 2003 after working on Cahill’s first campaign for the post in 2002. The aide rose to first deputy and chief of staff three years later, overseeing bond sales, the state pension fund and the lottery, according to Cahill’s website. He left in 2007 to join UBS and later went to Goldman Sachs, regulatory filings show.
City Councilor, Lawyer
Before helping Cahill win the treasurer’s office, Morrison was a city councilor in Taunton, a community of about 56,000 residents southwest of Boston. The graduate of Boston College holds a law degree from Suffolk University in Boston, according to information on the treasurer’s website.
Bond dealers are prohibited “from engaging in municipal securities business with issuers if certain political contributions have been made to officials of such issuers,” according to the MSRB’s Rule G-37.
Bankers can volunteer on an issuer’s behalf, according to the rulemaking board, which is based in Alexandria, Virginia. They run afoul of G-37 rules if they use the bank’s resources or incur company expenses while they volunteer, the regulator says on its website.
“An employee of a dealer generally can donate his or her time to an issuer official’s campaign without this being viewed as a contribution by the dealer to the official, as long as the employee is volunteering” during non-work hours and the dealer isn’t paying the employee’s salary, the board’s website says.
Goldman Sachs made no contributions to state or local public officials in Massachusetts through the first three quarters of this year, according to regulatory filings. A contribution can mean any “gift, subscription, loan, advance, or deposit of money or anything of value,” according to the rulemaking board. The firm’s next quarterly filing is due on Jan. 31, said Ernesto Lanza, the board’s general counsel.
Municipal bond dealers can apply for a waiver if they believe they may face an underwriting ban from the Financial Industry Regulatory Authority, which enforces rulemaking board regulations. Finra has granted G-37 exemptions, according to letters on its website. Nancy Condon, an authority spokeswoman, declined to comment.
“The volunteer stuff is tricky because people don’t always understand their volunteer work has value,” said Julie Vasady-Kovacs, a lawyer who specializes in political law at Kelley Drye & Warren LLP in New York.
Minnesota in 2005 banned Minneapolis-based Piper Jaffray Cos. (PJC) from handling negotiated underwriting and financial advisory work because of contributions by a municipal finance professional that exceeded the G-37 limit, according to a press report at the time. Banks may face fines if they serve as an underwriter when they should have been banned from participating in a bond sale, said Taylor, the former MSRB executive director.
In Boston, Goldman Sachs requested that it be removed from the underwriting team at the Massachusetts Bay Transportation Authority when contacted recently about managing a new bond offering, according to Jonathan Davis, the agency’s chief financial officer.
“They asked more to be on the sidelines and not participate in anything,” Davis said. He declined further comment. The agency is controlled by the governor’s office.
The bank made a similar request to the Massachusetts Housing Finance Agency, which is overseen by a board appointed by the governor.
“MassHousing received a call from Goldman Sachs in October in which they asked to be removed from all MassHousing bond deals,” said Thomas J. Farmer, a spokesman for the state agency, in an e-mailed statement. “After confirming that their request had nothing to do with the credit quality of MassHousing, we complied with their request.”
Goldman Sachs has also managed state general-obligation bond sales for the treasurer’s office and in June was the senior banker on a $486.5 million issue by the Massachusetts Water Pollution Abatement Trust, which is controlled by Cahill. David Kibbe, a spokesman for Cahill, declined to comment on Goldman Sachs’s status on the treasurer’s underwriting teams.
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