Washington, D.C. – Goldman Sachs Execution & Clearing, L.P. (GSEC) has agreed to pay $7 million in penalties and disgorgement to settle charges brought by the U.S. Commodity Futures Trading Commission (CFTC) related to a failure to adequately supervise client accounts, the agency announced March 13, 2012.
GSEC, a New York-based futures commission merchant, will pay a $5.5 million civil monetary penalty and $1.5 million in disgorgement. The CFTC order also mandates a cease and desist from violating regulations requiring diligent supervision.
The charges stem from a period between May 2007 and December 2009, during which GSEC provided back-office services to several broker-dealers. One broker-dealer in particular offered memberships to investors who traded commodities through subaccounts carried by GSEC. The CFTC found that GSEC failed to investigate warning signs of questionable behavior by this broker-dealer.
Specifically, in May 2007, the broker-dealer’s lawyer stated they would not engage in commodity futures trading and therefore didn’t need to register as a commodity pool operator. However, the broker-dealer had already opened a commodity futures trading account with GSEC. GSEC did not investigate this contradiction.
Further, in August 2009, GSEC discovered the broker-dealer had distributed a false account statement to a member, falsely claiming it was issued by a nonexistent GSEC affiliate. While GSEC alerted the broker-dealer to the issue, it simply accepted assurances that it wouldn’t happen again without further investigation. In December 2009, the broker-dealer disclosed negative capital balances of approximately $6.8 million to GSEC.
Throughout the period, GSEC earned roughly $1.5 million in fees and commissions from transactions executed for the broker-dealer. David Meister, Director of the CFTC’s Division of Enforcement, stated that the agency’s rules require diligent supervision and investigation of questionable activity, not simply reliance on assurances from interested parties.
GSEC has stated it has implemented enhanced supervision policies, procedures, and training in response to the findings. The CFTC acknowledged the assistance of the National Futures Association and the Chicago Board Options Exchange in the investigation.
Source: CFTC.gov
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