Goldman Sachs & Co. LLC has agreed to pay a fine of $1.25 million as a part of a settlement with the United States Financial Industry Regulatory Authority (FINRA). The settlement refers to Goldman’s violations of rules concerning fingerprinting.
Federal securities laws require FINRA member firms to fingerprint most associated persons prior to or upon association with a firm. The firms review the fingerprint results as part of their background check to determine, among other things, whether a prospective associated person has previously engaged in misconduct that subjects that person to a statutory disqualification. As set forth in Section 3(a)(39) of the Securities Exchange Act of 1934, certain criminal and regulatory events will subject a person to a statutory disqualification.
From January 2015 to November 2019, Goldman failed to fingerprint and screen for statutory disqualification a significant number of its U.S.-based non-registered associated persons. Between January 2015 to January 2018, Goldman failed to timely fingerprint at least 1,061 non-registered associated individuals.
Goldman was unable to determine whether it timely fingerprinted an additional 4,089 non-registered associated persons because it failed to locate any documentation reflecting that the firm fingerprinted these individuals. In addition, the firm failed to maintain fingerprint records for an additional 466 non-registered associated persons whom the firm fingerprinted.
Separately, between April 2018 and November 2019, Goldman allowed two non-registered associated persons who were subject to disqualification to become and remain associated with the firm. In each instance, Goldman failed to timely submit for processing the individual’s fingerprints, and in the first of the two instances, it failed to properly consider information in its possession about the individual’s disqualified status.
Goldman obtained the first individual’s fingerprints in April 2018 and she became associated with the Firm in May 2018. Prior to her association with the firm, Goldman received information that FINRA barred the individual for conversion in June 2014. Despite possessing information about this disqualifying factor, Goldman permitted this individual to associate with the Firm. In April 2019, Goldman submitted the individual’s fingerprints to FINRA for processing, learned that the individual was subject to statutory disqualification, and terminated her employment.
Goldman obtained the second individual’s fingerprints in May 2019 and he became associated with the Firm in June 2019. Goldman belatedly submitted this individual’s fingerprints to FINRA for processing in August 2019, and was notified by FINRA in that month that the individual was the subject of a 2012 felony conviction. After investigating the individual’s background further, Goldman terminated his employment in November 2019.
FINRA says that Goldman’s failure to fingerprint and properly screen its associated persons to meet Exchange Act and FINRA requirements arose from the firm’s failure to maintain a reasonable supervisory system and written procedures to identify and properly screen individuals who became associated with the firm in a non-registered capacity.
As a result of the foregoing, Goldman violated Section 17(f) of the Exchange Act and Rule 17f-2 thereunder, FINRA By-Laws, Article III, Section 3(b), Section 17(a) of the Exchange Act and Rule 17a-3 thereunder, and FINRA Rules 4511, 3110 and 2010.
On top of the fine, Goldman has agreed to a censure and an undertaking to review its systems and procedures regarding the identification, fingerprinting, and screening of non-registered associated persons to ensure that current systems and procedures are reasonably designed to achieve compliance with governing securities laws and regulations.