Goldman Sachs will pay a $5.5 million civil monetary penalty and a $1.5 million in disgorgement to settle CFTC charges that it failed to diligently supervise accounts from May 2007 to December 2009. The CFTC ordered Goldman Sachs to cease violations of CFTC regulations requiring diligent supervision, and to implement greater supervision policies, procedures, and training.
According to the CFTC order, Goldman Sachs provided back-office and other services to clients who are broker dealers themselves. One broker dealer client offered memberships to investors, to trade commodities in the broker dealer’s subaccount carried by Goldman Sachs. The Commission found that Goldman Sachs failed to supervise the handling of subaccounts, as it did not investigate indications of the broker dealer’s questionable conduct.
For instance, the order states that at the beginning of Goldman Sachs’ relationship with the broker dealer, the broker dealer’s lawyer said that his client would not trade commodity futures, and therefore had no need to register as a CPO with the CFTC. The broker dealer had actually already opened a commodity futures trading account with Goldman Sachs. Goldman Sachs did not investigate the contradictory representations.
The order goes on to state that the same broker dealer distributed a subaccount statement, falsely claiming it was issued by a Goldman Sachs affiliate. The affiliate does not exist. Goldman Sachs instructed the broker dealer not to issue an account statement again.
In December 2009, the broker dealer presented Goldman Sachs a draft disclosure statement, disclosing that the broker dealer had carried a negative capital balance of $6.8 million since October 2009. Goldman Sachs received $1.5 million in gross fees and commissions for tractions it executed or cleared on behalf of the broker dealer, from May 2007 to December 2009.