State and federal regulators fined Goldman Sachs $16 million Thursday for a pay-to-play scheme involving a former vice president, a close political associate of former state treasurer Timothy P. Cahill, who landed the firm a $445.9 million bond deal with an agency Cahill oversaw.
In a negotiated settlement with the Securities and Exchange Commission, the investment banking giant agreed to pay nearly $12 million for the actions of Neil Morrison, who previously had served as Cahill’s deputy treasurer. Morrison was deeply involved in Cahill’s gubernatorial campaign at the same time he was soliciting bond deals with state agencies.
This violated federal regulations barring bond underwriters from engaging in any kind of political activity — whether making or soliciting cash donations, writing speeches, or providing other services — on behalf of a public official who controls the fate of lucrative bond contracts. The $12 million fine is the largest ever imposed by the SEC for a pay-to-play violation and the first involving a so-called “in kind” donation of something other than cash.
Attorney General Martha Coakley also disclosed Thursday that she had negotiated a settlement with the firm in which it will pay just over a $4 million fine on the same charges. Coakley brought indictments against Cahill last spring for his use of $1.5 million in state lottery funds allegedly to boost his 2010 gubernatorial candidacy. A trial has been scheduled for Oct. 29.
In a statement, Goldman said the firm had brought Morrison’s activities in Cahill’s campaign to the attention of federal regulators and took responsibility for the violations.
“We detected Morrison’s activities, promptly alerted regulators, terminated his employment, and fully cooperated with the investigations,” the statement read. “We accept responsibility for the consequences of his unauthorized actions under the terms of the settlements announced today.”
The settlement ends the federal and state investigations into Goldman’s legal liability. Coakley spokesman Christopher Loh would not comment on whether her office was conducting a criminal investigation. The SEC said it was still investigating Morrision.
Morrison, 38, a former Taunton city councilor, did not respond to calls seeking comment this week. He has worked this year for a public relations firm, Northwind Strategies, that is owned by Democratic political strategist Doug Rubin.
Rubin said Morrison is not currently an employee and would not comment further, beyond saying that Morrison never worked for his political consulting firm, DR Associates, whose clients include Governor Deval Patrick, Democratic senate candidate Elizabeth Warren, and congressional candidate Joseph P. Kennedy III.
In her findings, Coakley says that Morrison sought campaign donations from “those who might benefit from the favor of the treasurer,” and “noting the treasurer’s control of the Alcoholic Beverages Control Commission’’ and Massachusetts State Lottery. She cited an e-mail in which he said he was working 10 hours a week on the Cahill gubernatorial campaign at the same time he was working for Goldman.
The Boston Globe reported the details of Morrison’s $455.9 million bond deal with the Massachusetts Water Pollution Abatement Trust and his close political ties to Cahill in June 2010. Around that period, Morrison was also seeking bond work with the State School Building Authority, which Cahill, as treasurer, also controlled.
The SEC, in its disclosure Thursday, said that between November 2008 and October 2010, Morrison and Goldman landed 30 bond deals with local and state agencies in Massachusetts in violation of federal security regulations. The agency said Morrison’s political activities on Cahill’s behalf disqualified the firm from engaging in public underwriting business in Massachusetts for two years after his political work occurred.
Morrison's involvement in working for Cahill’s gubernatorial campaign emerged months after the bond deal with the water pollution trust. E-mails were revealed in a civil suit brought by Cahill against his campaign consultants that describe Morrison as the treasurer’s point person in the contract negotiations with those consultants.
“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 wrote in the Aug. 11, 2010 e-mail to the consultants. “I will speak to treasurer Cahill and get back you with his thoughts.’’
Morrison, who quit his job as Cahill’s top deputy to manage his 2006 re-election campaign, joined Goldman in July 2008. He was fired by the firm in December 2010 due to a “loss of confidence involving outside activities without prior approval.”
Federal rules define active involvement in political campaigns and the use of a security firm’s office during working hours as an in-kind campaign contribution to candidates.
“The pay-to-play rules are clear: municipal finance professionals that use their firm’s resources to campaign on behalf of political candidates compromise themselves and the firms that employ them,” said Robert Khuzami, director of the SEC’s division of enforcement in a statement.
The SEC’s press release cited e-mails that Morrison sent from his Goldman account to a deputy treasurer in Cahill’s office to back up its case.
In one, sent in September 2009, Morrison emphasized to an unnamed deputy treasurer how important it is to land the underwriting contract for a bond deal for his company.
“From my standpoint as an advisor/consultant/friend I am saying, PLEASE don’t give these [underwriter] slots away willy-nilly. You are in the fight of your lives and need to reward loyalty and encourage friendship. If people aren’t willing to be creative with their support then they shouldn’t expect business. This has to be a political decision,” Morrison wrote.
Federal regulators also say that Morrison made a contribution to Cahill by giving cash to a friend who then wrote a check to the treasurer’s campaign committee. Such an arrangement is illegal under state campaign finance laws.
Goldman suspended its bond solicitation work in Massachusetts in 2010 after it reported Morrison’s political activities to federal regulators. The financial firm has worked on $20.75 billion in state general obligation bonds since 2000.
Frank Phillips can be reached at firstname.lastname@example.org.