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Goldman Sachs has agreed to pay a fine of £17.5m to the FSA after failing to disclose trader Fabrice Tourre was under fraud investigation by the US Securities & Exchange Commission.
Tourre is the trader accused of fraud by the SEC over his role in the creation and sale of the Abacus CDO, which was shorted by hedge fund Paulson & Co.
Goldman agreed in July to pay $550m to settle the SEC civil charges, but did not admit any wrongdoing.
However, the investment bank is expected to say it made an error in not informing the UK regulator Tourre was under SEC scrutiny at the time he moved to the investment bank's London offices from New York in 2008.
The Goldman fine would be one of the largest ever by the FSA, which slapped a £33.3m penalty against a J.P.Morgan last year.
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How do they work it out?
Without any sarcasm I would be genuinely interested if anyone could explain how the level of fine is assessed. From where I stand it just seems as the Regulator picks a number out of the air – which appears to be further adjusted depending on ability to pay – the richer you are the higher the fine. This is then subject to a ‘discount’ – which to me seems judged on how good the lunch was that the accused provided for the Regulatory Team. The whole process seems to be a mystery cloaked in an enigma. I would hope that there is some robust formula that can be calculated by anyone. Something along the lines of: Calculated detriment in monetary terms to the market or to customers X y% multiplied by √of the average of the last 4 years taxable profits – less a prompt payment settlement of 5% per week up to 6 weeks. (i.e. 30% discount in week 1 reducing). I know this is a banal example but is made to illustrate that a robust and open formula is probably what the regulator would expect of us if the boot was on the other foot.
Posted by: Harry Katz