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From Banking and Finance Law Daily, August 3, 2016

Use of confidential information costs Goldman Sachs $50 million

By John M. Pachkowski, J.D.

Goldman, Sachs & Co. and its bank holding company parent Goldman Sachs Group, Inc., have been ordered by the Federal Reserve Board to pay a $50 million penalty for its unauthorized use and disclosure of confidential supervisory information.

The prospect of the Fed’s enforcement action was first reported in the July 25, 2016, New York Times.

The Fed took this action against Goldman Sachs after it determined that the firm’s personnel improperly used confidential supervisory information obtained from the Fed in presentations to its clients and prospective clients in an effort to solicit business for the firm. The Fed also found that from at least 2012, the firm did not have sufficient policies, procedures, or adequate employee training in place to ensure compliance with current laws prohibiting the unauthorized use or disclosure of confidential supervisory information.

Enhanced compliance program. The terms of the Fed’s order also require Goldman Sachs to put in place an enhanced program to ensure compliance with Board regulations concerning the receipt, use, and dissemination of confidential supervisory information. Furthermore, Goldman Sachs is prohibited from re-employing individuals involved in the improper disclosure of confidential supervisory information or retaining them as consultants or contractors. This latter condition is based on November 2015 enforcement action by the Fed that permanently barred a former Goldman Sachs employee from the banking industry following his guilty plea for the theft of confidential supervisory information (see Banking and Finance Law DailyNov. 6, 2015).

NYDFS settlement. This latest action also follows an October 2015, settlement agreement between Goldman Sachs and the New York Department of Financial Services (NYDFS) in which Goldman Sachs agreed to pay a $50 million for violating New York state banking laws in connection with its unauthorized possession of NYDFS confidential supervisory information. As part of that New York settlement, Goldman Sachs also agreed to abstain from accepting certain new consulting engagements for three years; admit that the particular employee engaged in criminal theft of confidential supervisory information; admit management’s failure to properly supervise the employee; and implement reforms to its policies and procedures (see Banking and Finance Law DailyOct. 29, 2015).

Prohibition proceedings. In addition to the consent order, the Fed also announced that it is instituting enforcement proceedings against Joseph Jiampietro, a former managing director at Goldman Sachs, seeking to impose a fine and permanently bar him from the banking industry stemming from his and his subordinates' unauthorized use and disclosure of confidential supervisory information.

The Fed’s notice stated that Jiampietro "engaged in unsafe or unsound practices, violations of law, and breaches of fiduciary duty;" and that in connection with this misconduct, "Jiampietro received a financial gain or other benefit and Goldman Sachs suffered financial loss or other damage."

Companies: Goldman, Sachs & Co.; Goldman Sachs Group, Inc.

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