Goldman Settlement Shows Bankers Still Paying to Play
Neil Morrison brought his experience as a Massachusetts deputy treasurer and a year working on Wall Street to Goldman Sachs Group Inc. (GS) when the firm hired him as a Boston-based public-finance banker in 2008.
While Morrison, now 38, would help the bank pull in $7.5 million in fees for underwriting $9 billion of state bonds before he was fired in 2010, his methods ultimately backfired. Yesterday, Goldman Sachs agreed to pay $14.4 million to settle state and federal claims that Morrison broke rules meant to prevent peddling influence to win government bond business.
“Pay-to-play is an inevitable consequence of bankers seeking lucrative fees controlled by politicians,” said Joseph Franco, a law professor at Suffolk University in Boston and former assistant general counsel at the U.S. Securities and Exchange Commission. “Firms create incentive structures for their bankers that fuel this sort of conduct.”
Congress created the Municipal Securities Rulemaking Board in 1975 to write regulations for underwriters of state and local bonds. The MSRB has broadened its pay-to-play rules over the years, limiting how much bankers can contribute to politicians who control the bond issues, while the SEC, which enforces the rules, has increased its oversight of the $3.7 trillion market.
The SEC and Massachusetts Attorney General Martha Coakley said Morrison made improper in-kind campaign contributions to former Treasurer Tim Cahill while seeking bond work from Massachusetts. While a vice president at the bank, Morrison helped Cahill’s unsuccessful run for governor from November 2008 to October 2010, the SEC said yesterday when it announced the settlement with Goldman Sachs.
“While rules designed to curb conflicts will never eliminate this kind of behavior, strict enforcement of such rules is critical to changing the day-to-day dynamics of politicians, firms and individual bankers,” Franco said.
Morrison, a graduate of Boston College who holds a law degree from Suffolk University, worked as many as 10 hours a week on Cahill’s campaign, at least part of the time during normal office hours, the regulators said. He sent 364 campaign- related messages through his Goldman Sachs e-mail account over 13 months, they said.
In one e-mail to a campaign staffer in July 2009 and cited by the SEC, Morrison wrote: “I am staying in banking and don’t want a story that says that I am helping Cahill, who is giving me banking business. If that came out, I’m sure I wouldn’t get any more business.”
After being fired by Goldman Sachs, Morrison worked for a time at Northwind Strategies, a Boston-based political- consulting firm. It was founded by Doug Rubin, a senior campaign strategist in 2006 and 2010 for Massachusetts Governor Deval Patrick, a Democrat. Rubin also ran Cahill’s 2002 campaign.
The help Morrison gave Cahill’s 2010 run for governor disqualified Goldman Sachs from underwriting bonds for Massachusetts and its agencies for two years based on the MSRB rules, according to the SEC. Yet the New York-based bank subsequently participated in 30 offerings, improperly receiving more than $7.5 million in fees, the agency said.
“We detected Morrison’s activities, promptly alerted regulators, terminated his employment, and fully cooperated with the investigations,” Michael DuVally, a Goldman Sachs spokesman, said in a statement. “We accept responsibility for the consequences.”
The bank didn’t admit or deny wrongdoing. Thomas Kiley, Morrison’s lawyer, didn’t respond to a telephone call seeking comment on the settlement. Morrison also didn’t respond to telephone calls seeking comment.
Goldman Sachs agreed to pay $12 million to the SEC, partly offset by about $1.5 million paid to Massachusetts and $607,645 handed over to the Massachusetts Water Pollution Abatement Trust. The firm also delivered $2.4 million to the attorney general’s office, a separate state settlement shows.
The SEC said the bank should have taken additional steps to ensure that Morrison followed the rules, given his political background and relationship with Cahill and other state officials. It said Morrison, who worked in the treasurer’s office from 2003 to 2007 after helping Cahill’s campaign in 2002, operated from a one-person office in Boston and was supervised by Goldman Sachs managers in New York.
The settlement was the SEC’s first involving non-cash campaign contributions. The scandal began to emerge in October 2010, after Goldman Sachs discovered Morrison’s campaign work and told state officials it was withdrawing from underwriting Massachusetts bonds.
“It’s perhaps merely a slap on the wrist but it says this is where we’re going,” said David Lipton, director of the securities regulation program at Catholic University of America’s Columbus Law School in Washington and a former member of the MSRB board. “There is a desire to keep the professional from attracting business through political contributions.”
Morrison also raised money for Cahill, according to the SEC. Cahill, 53, was elected treasurer as a Democrat and ran for governor in 2010 as an independent. A former Cahill aide, Morrison drafted speeches for his old boss, communicated with reporters, advised on personnel decisions, and interviewed at least one possible running mate, the agency said.
Morrison sometimes referred to his campaign work while soliciting business in an attempt to curry favor from Cahill’s staff, the SEC said.
In another e-mail cited by the agency, Morrison urged a deputy treasurer not to hand out underwriting business “willy- nilly.”
“If people aren’t willing to be creative with their support then they shouldn’t expect business,” Morrison said in September 2009 in an e-mail to Scott Campbell, who replaced him as Cahill’s chief of staff. “This has to be a political decision.”
Morrison also made an indirect cash contribution by giving money to a friend who then wrote a check to the Cahill campaign, according to the SEC. His contributions created a conflict of interest that Goldman Sachs didn’t disclose, the agency said. While Goldman Sachs settled, a pay-to-play case against Morrison is still pending, according to a filing with the Financial Industry Regulatory Authority.
Cahill, who served two terms as treasurer from 2003 to January 2011, separately faces state claims that he improperly used lottery advertising funds to promote his 2010 run for governor, as does his former aide Campbell. Both pleaded not guilty to corruption charges in April in Suffolk Superior Court in Boston.
“This kind of settlement strikes the appropriate fear into personnel,” said Lipton, the former MSRB board member. “It certainly doesn’t help the bank’s reputation either.”
The SEC in March 2010 fined Southwest Securities Inc. $470,000 after it found John Kendrick, a banker for the Dallas- based firm from 2000 to 2009, donated $1,625 to Cahill from 2003 through 2008, which ran afoul of rules because it also co- managed 19 Massachusetts bond deals totaling $14 billion.
Goldman Sachs generated $905 million in revenue from debt underwriting in the first six months of this year, or 5.5 percent of the firm’s first-half revenue, according to a July earnings report. The settlement had no effect on the bank’s share price, which gained 1.9 percent yesterday in New York, as investors viewed the penalty as trivial, according to analysts including David Trone, head of U.S. banks and brokers research at JMP Securities LLC.
“These things are so commonplace, the market just ignores them,” Trone said from his office in New York.
To contact the editors responsible for this story: Stephen Merelman at email@example.com.