Caixin
Apr 24, 2019 03:07 AM
FINANCE

Goldman Sachs Settles Breach-of-Rules Case for $22.3 Million

The China Securities Regulatory Commission reached first administrative settlement case with Goldman Sachs (Asia) and Beijing Gao Hua Securities. Photo: IC
The China Securities Regulatory Commission reached first administrative settlement case with Goldman Sachs (Asia) and Beijing Gao Hua Securities. Photo: IC

China’s top securities regulator settled a case involving violations of regulations on internal controls around the 2015 market meltdown by U.S. investment bank Goldman Sachs and its Chinese partner. The firms agreed to pay 150 million yuan ($22.3 million) in fines, the China Securities Regulatory Commission (CSRC) said Tuesday.

This was the first administrative settlement reached in China’s capital market, four years after the CSRC initiated a trial of a procedure commonly used in the West. The Goldman Sachs case is seen as an important step forward in Chinese regulators’ test of the administrative settlement mechanism.

A 2016 inspection found violations of rules on internal controls at Hong Kong-based Goldman Sachs (Asia) and Beijing Gao Hua Securities, partner of Goldman Sachs’ China venture, when their traders conducted stock and stock index futures trading between May and July 2015, the CSRC said in a statement (Link in Chinese). China’s stock market suffered a meltdown in the summer of 2015 after months of surging prices.

Goldman Sachs (Asia), Beijing Gao Hua and nine staff members of the companies agreed to pay 150 million yuan to settle the case, the securities regulator said. The companies also pledged to enhance internal governance as part of the settlement, the CSRC said.

Administrative settlements have been widely used in many countries as a way of dealing with certain market breaches to save time and money for administrative procedures while providing efficient compensation to victims.

In 2014, Bank of America agreed to pay a record $16.65 billion to settle a fraud case with the U.S. Justice Department, which accused the bank of intentionally selling toxic mortgages to investors and fueling the housing bubble that led to the global Financial Crisis.

The CSRC in 2015 launched a pilot test of administrative settlements for capital market irregularities. However, not a single case was settled before this amid debates over settlement procedures and fees.

The regulator “has long been exploring the use of administrative settlement, but the foundation was not solid,” said a person close to the CSRC.

The CSRC said it will push forward related legal and regulatory arrangements to promote the pilot program and further use administrative settlements in maintaining capital market order and protecting investor interests.

Contact reporter Han Wei (weihan@caixin.com)


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