I support this CFTC enforcement case against Goldman Sachs, the fourth case against Goldman in my 18-month tenure at the CFTC.[1] I commend our staff for uncovering the pervasive and persistent violations of the law by Goldman in its over-the-counter derivatives business known as swaps. However, I cannot support the settlement, as it is not strong enough to achieve the goals of law enforcement—justice, accountability, and deterrence. Given that I support bringing the case, but not the settlement, I respectfully vote to concur.
Over and Over Again: Goldman’s Corporate Culture of Violating Federal Laws, Getting Caught, and Settling Federal Enforcement Cases
As a longstanding federal enforcement official, I am significantly concerned that Goldman is a repeat defendant in federal enforcement cases. Goldman has a long history of violating federal laws, getting caught, and then settling with federal agencies.
Not only is Goldman a repeat defendant in CFTC enforcement actions, including some brought before my tenure,[2] it has been the defendant in many other federal enforcement actions by other federal agencies. That includes two actions brought by the Securities and Exchange Commission in the past year.[3] Before my tenure at the CFTC, I oversaw an investigation of Goldman in my capacity as the Special Inspector General for TARP that resulted in a Department of Justice civil action where Goldman admitted to fraud in connection with its sale of toxic residential mortgage backed securities that contributed to the 2008 financial crisis, a case where Goldman paid more than $5 billion.[4]
These enforcement actions evidence Goldman’s culture of non-compliance. Instead of creating a culture where Goldman invests in stronger controls and supervision, and then regularly reviews those controls and supervision to ensure that it is not violating the law, Goldman has created a culture of being a repeat federal defendant.
I am concerned that each settlement for each specific illegal act may be viewed by the defendant in a silo, without painting a larger picture of the failure of corporate culture that is evidenced by repeated enforcement cases. I am also concerned that the defendant may view paying the penalty as a cost of doing business.
Goldman’s Violations in This Action Are Serious, Pervasive and Persistent and Go to the Heart of Post-Crisis Dodd Frank Act Reforms.
The violations of law found by the CFTC in this case are serious, pervasive, and persistent, evidencing widespread problems with Goldman’s culture as a swap dealer. Goldman continued this illegal activity for many years, the whole time that Goldman has been provisionally registered with the CFTC as a swaps dealer.
Goldman’s illegal conduct charged today go to the heart of Dodd-Frank Act reforms designed to keep our financial system safe after the 2008 financial crisis— a crisis that wreaked havoc on the lives of regular people and small businesses far removed from Wall Street’s swap business that contributed to the financial crisis. The defendant violated laws that are Dodd-Frank Act reforms designed to help the CFTC identify systemic risk. These post-crisis reforms bring transparency to a previously-opaque swaps market, and facilitate the CFTC’s surveillance and enforcement. For example:
- Goldman failed to accurately and timely report a significant portion of swap data for at least 20 million swaps to a swap data repository that helps the CFTC identify systemic risk and conduct market surveillance and enforcement.
- For nine years, and on more than one million occasions, Goldman failed to provide pricing information or provided inaccurate pricing information to potential counterparties before entering a swap. This pricing information (called mid-market marks) allows potential counterparties, including for example municipalities and pension funds, to see an approximate measure of the objective value of a swap prior to adding the swap dealer’s markup.
- Goldman failed to have risk management policies related to clearing.
- Goldman failed to notify the CFTC and National Futures Association (NFA) about material changes to its assessment of initial margin requirements.
The defendant holds the benefit of CFTC provisional registration as a swap dealer, a benefit that brings Goldman substantial global swaps business and profit. That provisional registration comes with responsibilities to implement the systems, controls, and supervision needed to comply with the law. Today’s charges show that Goldman did not fulfill its responsibilities, even as it benefited from its CFTC registration.
The Settlement is Not Strong Enough for Justice, Accountability and Deterrence
I cannot support the proposed settlement because I do not find it to be strong enough to achieve the enforcement goals of justice, accountability and deterrence. This is not the first time that the Commission has charged Goldman with failure to supervise its swaps business, which means that Goldman is a recidivist in violating that specific law. Here the violations occurred for more than a decade, even as the defendant settled other CFTC enforcement actions.
The illegal action evidences very serious corporate governance failures that are not adequately addressed in the undertakings in the settlement. In many instances over 10 years, the chief compliance officer identified these issues in annual reports, but they were either ignored or fixes were explicitly delayed. In another corporate governance failure, for more than 18 months, the head of Global Clearing reported to the head of Business Trading, in violation of the CFTC’s regulations that risk management personnel must report to senior management, and be independent from the business trading unit. The National Futures Association found many similar violations in 2016 and 2019 examinations for different conduct, but involving the same regulations.[5]
To achieve justice and accountability for corporate governance failures, I would have wanted to see an undertaking in the settlement for an escalation of chief compliance officer annual reports, NFA and CFTC examination reports, and an organization chart of reporting lines (at least annually). This would ensure that those in the C-suite are held accountable, and have the necessary information and attention they need to change the culture to one of compliance and accountability. It also facilitates the CFTC holding management accountable.
The requirement for a compliance monitor should ring a very loud alarm for Goldman about the lack of confidence that the CFTC has in the defendant’s ability to implement the systems, controls, and supervision needed to come into, and stay in, compliance with the law. Rather than rely solely on this monitor, the Commission should heighten its supervision of the defendant as a swap dealer.
While I appreciate that in this case the Commission imposes a $30 million penalty, which is higher than other swap data reporting cases, I do not believe that it is high enough to deter this repeat defendant from violating the law again. I agree with my colleague Commissioner Johnson with her concerns in an earlier case this summer against Goldman Sachs: “The Commission’s penalties must be rightly calibrated to deter repeat offenders and to prevent anyone from perceiving penalties as the cost of doing business.”[6] This penalty is not high enough given the many years of violations, especially given that the CFTC is again charging Goldman with supervisory failures as a swap dealer. It is likely that this well-resourced defendant views these settled cases as a cost of doing business.
Additionally, in this case, the Commission has not used another enforcement tool that is aimed at greater accountability and deterrence—a requirement that the defendant admit its wrongdoing when settling, which I have strongly advocated that the Commission use.[7] To a well-resourced institution like Goldman, the requirement for the defendant to admit their wrongdoing publicly, with all of the consequences of doing so, brings greater public accountability and is likely to have more of a deterrent impact than penalties alone. Requiring Goldman to admit its wrongdoing, and setting the expectation that if it violates the law again the CFTC will not settle the case on a neither-admit-not-deny basis, could be exactly what is needed for this repeat defendant to change its culture from one of focusing on settling enforcement cases from its well-stocked coffers to instead investing in compliance to prevent illegal acts.
For these reasons, I respectfully vote to concur.
[1] See CFTC Orders Goldman Sachs to Pay $5.5 Million for Recordkeeping Violations and Violating a Prior Commission Order | CFTC (Aug. 29, 2023); CFTC Orders Goldman Sachs to Pay $15,000,000 for Violations of Swap Business Conduct Standards | CFTC (Apr. 10, 2023); CFTC Orders 11 Financial Institutions to Pay Over $710 Million for Recordkeeping and Supervision Failures for Widespread Use of Unapproved Communication Methods | CFTC (Sept. 27, 2022).
[2] See CFTC Orders Goldman Sachs to Pay $1 Million for Recordkeeping Violations | CFTC (Nov. 26, 2019); CFTC Orders Goldman Sachs to Pay $120 Million Penalty for Attempted Manipulation of and False Reporting of U.S. Dollar ISDAFIX Benchmark Swap Rates | CFTC (Dec. 21, 2016); CFTC Orders Goldman, Sachs & Co., a Commission Registrant, to Pay $1.5 Million for Supervision Failures | CFTC (Dec. 7, 2012); CFTC Orders Goldman Sachs Execution & Clearing, L.P., a Registered Futures Commission Merchant, to Pay $7 Million for Supervision Failures in Handling Accounts it Carried | CFTC (Mar. 13, 2012).
[3] See Goldman to Pay SEC $6 Million in Penalties for Providing Deficient Blue Sheet Data | SEC (Sept. 20, 2022); SEC Charges Goldman Sachs Asset Management for Failing to Follow its Policies and Procedures Involving ESG Investments | SEC (Nov 22, 2022).
[4] See Special Inspector General for the Troubled Asset Relief Program, “GOLDMAN SACHS AGREES TO PAY MORE THAN $5 BILLION IN CONNECTION WITH ITS SALE OF RESIDENTIAL MORTGAGE BACKED SECURITIES,” (Apr. 11, 2016) Goldman_Press_Release.pdf (sigtarp.gov); Department of Justice, “Goldman Sachs Agrees to Pay More than $5 Billion in Connection with Its Sale of Residential Mortgage Backed Securities | DOJ,” (Apr. 11, 2016).
[5] In 2022, the NFA settled a case with Goldman for among other things, failing to supervise it swaps business, failing to implement policies and procedures designed to ensure compliance with its requirement to provide mid-market marks, failing to created records about these marks, and failing to provide the marks to counterparties. The NFA also found that Goldman violated CFTC regulations regarding know-your-counterparty, failed to collect and post variation margin, and failed to ensure its trading records were comprehensive, among other charges.
[6] See Commissioner Kristin Johnson, Statement of Commissioner Kristin N. Johnson Regarding Effectively Calibrating CFTC Civil Money Penalties to Deter Repeated Compliance Failures | CFTC (Aug. 29, 2023).
[7] Commissioner Christy Goldsmith Romero, Statement of Commissioner Christy Goldsmith Romero: Proposal for Heightened Enforcement Accountability and Transparency in Settlements | CFTC (Sept. 19, 2022).
