April 1, 2023

DealBook: Goldman to Pay $12 Million to Settle S.E.C. ‘Pay to Play’ Case

Goldman Sachs settled federal allegations on Thursday that one of its investment bankers curried favor with a public official to win lucrative government contracts in Massachusetts.

The Wall Street bank struck a roughly $12 million settlement with the Securities and Exchange Commission to resolve the “pay to play” accusations without admitting or denying guilt.

The banker, Neil M.M. Morrison, who was a vice president at the firm, did not settle. His lawyer did not return a call for comment.

The Securities and Exchange Commission said Mr. Morrison won government business for Goldman after touting his strong ties to the State treasurer at the time, Timothy P. Cahill, who in April was indicted on public corruption charges. Mr. Morrison, the S.E.C. said, in essence ran a campaign office for Mr. Cahill out of Goldman, acting as a fund-raiser and speechwriter. He also made cash donations to Mr. Cahill’s campaign.

During the same period, the S.E.C. says, Mr. Morrison began soliciting public contracts for Goldman, a violation of securities laws. His lobbying was done during work hours and using the firm’s e-mail system and phones.

“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 enforcement at the commission.

The S.E.C. faulted Goldman for failing to keep an eye on Mr. Morrison, who was portrayed by the regulator as a major public finance banker. Had Mr. Morrison’s activities been disclosed, it would have prohibited Goldman from getting business from the state for two years.

In a statement, Goldman said it detected Mr. Morrison’s activities, flagged regulators and then terminated him. “We accept responsibility for the consequences of his unauthorized actions under the terms of the settlements announced today and are pleased to resolve these investigations.”

Goldman’s penalty includes disgorgement of $7.5 million that it earned in fees from underwriting Massachusetts bonds. The firm also settled with the Massachusetts attorney general, which in a related action received more than $4 million from Goldman.

“We are pleased that this settlement brings back more than $4 million to the Commonwealth and serves to protect the integrity of the Commonwealth’s bidding process,” Massachusetts Attorney General Martha Coakley said in a statement. Ms. Coakley cited “serious violations of state law that involved millions of taxpayer dollars.”

For Mr. Morrison, the S.E.C. said, winning the contracts was personal. “We have discussed the Build American Bond transaction and how important it is to me,” he wrote in an e-mail to one of Mr. Cahill’s employees in reference to a deal that Goldman wanted to underwrite. “Having Goldman as the lead and getting 50% of the economics would be such a home run for me.”

Mr. Morrison, the S.E.C. said, highlighted his political ties when pushing Mr. Cahill’s office for business. In one e-mail to a deputy treasurer, he wrote, “From my standpoint as an advisor/consultant/friend I am saying, PLEASE don’t give these slots away willy-nilly,” referring to the underwriting business. “This has to be a political decision.”

At one point, according to the S.E.C. complaint, Mr. Morrison acknowledged the problem his lobbying posed, telling a campaign official in an e-mail that “I am staying in banking and don’t want a story that says that I am helping Cahill, who is giving me banking business. If that came out, I’m sure I wouldn’t get any more business.”

Article source: http://dealbook.nytimes.com/2012/09/27/goldman-to-pay-12-million-to-settle-s-e-c-pay-to-play-case/?partner=rss&emc=rss

Political Advocacy Groups Denied Tax-Exempt Status

Three nonprofit advocacy groups that recruited and trained potential political candidates in the last several years have been denied tax exemption by the Internal Revenue Service.

Copies of the letters informing the groups of the decisions were heavily redacted by the I.R.S. when it released them last week, so it was impossible to know the names of the organizations involved, or which political party they might have worked with.

“You are not operated primarily to promote social welfare because your activities are primarily for the benefit of a political party and a private group of individuals, rather than the community as a whole,” the I.R.S. wrote in the letters. “Accordingly, you do not qualify for exemption.”

Word of the decisions has been circulating this week, especially among lawyers who advise these types of nonprofits because they have become more prominent in political elections.

The organizations had been created as a type of nonprofit — known as a 501(c)4 for the section of the tax code that governs it. “I don’t know that you can read a message into these decisions, but the fact that they’re landing now, just as interest in these types of organizations is heating up again, is causing them to get a lot more attention than they normally would,” said Marcus S. Owens, a lawyer who used to run the division of the I.R.S. that oversees all nonprofit groups.

In recent months, the I.R.S. has undertaken actions that suggested the agency had stepped up its scrutiny of these groups. The agency recently backed off inquiries into whether five major donors to such groups had paid gift taxes — a rule rarely if ever enforced. The I.R.S. said it needed to develop a broader policy before taking any individual actions.

Billionaires like the Koch brothers and political strategists like Karl Rove are best known on the Republican side for being affiliated with groups weighing in on recent elections, like the 2010 midterm cycle. Democrats have also begun forming similar groups to counter those heavyweights.

Al From, founder of the recently folded Democratic Leadership Council, an advocacy group once led by Bill Clinton, said state-affiliated groups of national organizations like the D.L.C. had proved troublesome in the past.

“In the early 1990s, a lot of people wanted to organize chapters and we let them do that,” Mr. From said. “But it caused so many problems that we severed all ties to them not long after that.”

In 2002, the I.R.S. moved to revoke the council’s tax exemption for three years — 1997, 1998 and 1999 — but the United States District Court for the District of Columbia ruled that the revocation was improper and the organization continued. It closed in February.

Some experts speculated that the groups that received the recent I.R.S. letters — two founded in 2006 and one in 2007 — might have applied for tax exemption with an eventual court challenge in mind.

“Any lawyer would have told them they weren’t going to get exemption based on the facts we can see in these letters,” said Paul Streckfus, a former I.R.S. official who now publishes an influential newsletter about legal and tax developments in the tax-exempt world. “I think it’s the beginnings of a test case.”

Others said the I.R.S. actions may be more routine. In 2003, for example, it denied exemption to an advocacy group working to train women affiliated with a particular party for political leadership, even though the group said its work was nonpartisan.

“I think the I.R.S. may have been just relying on past decisions it has made in similar cases when it issued these denial letters,” said George E. Constantine, a lawyer who works with nonprofits.

Article source: http://feeds.nytimes.com/click.phdo?i=9ba5299e8ce872aacfc5b0973a41da4f