Goldman fined 160,000 pounds over Maxwell deals: SFA finds no evidence of illicit activity, but bank falls foul of reporting rules over late delivery of paid-for stock

THE Securities and Futures Authority yesterday fined Goldman Sachs Equity Securities (UK) pounds 160,000 plus costs of pounds 125,000 over three portfolio share trades carried out in 1990/91 with companies controlled by the late Robert Maxwell.

The fine, the highest in the SFA's history, resulted from inquiries the agency carried out between September 1992 and March 1993 within the Goldman Sachs group into the business dealings it had with Maxwell and companies controlled by or associated with him.

In each deal Goldman bought a portfolio of securities from Maxwell- controlled companies that were managing Maxwell pension money. Goldman paid for the shares on the due date but did not receive all of them until a later date, in breach of SFA rules. As a result Goldman temporarily had fewer assets than it should have done under SFA capital adequacy rules. The SFA also decided that Goldman's lack of knowledge that these mistakes had been made was also a cause for concern.

In a carefully worded statement agreed with Goldman, the SFA said: 'As a result of these inquiries, the purpose of which was to establish whether any SFA member in the Goldman Sachs Group was in breach of the SFA's rules, the SFA did not conclude that Goldman Sachs or any of its personnel participated in any illicit conduct with, or were aware of illicit conduct by, Maxwell or any entity controlled by or associated with him.'

Gregory Palm, managing director and general counsel of Goldman Sachs International, said the bank 'regretted the errors'.

'We don't like to make errors of any kind, particularly those which result in rulings of this type.'

When asked why the SFA had not stated that Goldman definitely did not participate in any illicit conduct with Maxwell, Mr Palm responded: 'The SFA's business is not to affirmatively clear people but its job is to examine the organisations and systems involved and to identify any problem from a regulatory point of view.'

The SFA found that the rule breaches arose from 'certain deficiencies in internal organisation in GSES between July 1990 and October 1992'.

Mr Palm said: 'We have always maintained that the facts as we know them confirmed that Goldman Sachs did not manipulate any securities markets or improperly divert any company or pension fund assets, and we are gratified that the SFA's findings are consistent with this view.'

GSES's head dealer at the time of the three trades was Eric Sheinberg, who dealt extensively with Robert Maxwell. Mr Sheinberg is currently a partner with Goldman working in the US.

Mr Palm said that Mr Sheinberg had had nothing to do with the computational errors discovered by the SFA. Mr Sheinberg had been GSES's head trader when Goldman built up large positions in Maxwell Communication Corporation between August 1990 and February 1991.

The share deals involved were worth pounds 10m, pounds 15m and pounds 35m.

The SFA ruling said that the first transaction involved GSES buying a group of 135 securities from London and Bishopsgate International in July 1990, but delivery was not complete until one week after settlement day. GSES did not realise that there had been a 'free payment' that should have been included in GSES's daily regulatory capital adequacy calculation.

In the second deal GSES bought a portfolio of 107 securities from Bishopsgate Investment Management in August 1990 but delivery was not completed until November 1990. Again GSES did not realise there had been a free payment, and as a result it submitted 'materially inaccurate financial information'.

In the last deal GSES bought a group of 100 securities from Bishopsgate Investment Trust in July 1991 with delivery not complete until September 1991 with similar results.

View from City Road, page 30

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