The latest compliance news: regulatory developments, punishments, guidance, permissions and new product and service offerings.

Securities and Exchange Commission
The Securities and Exchange Commission late last month charged Goldman Sachs Asset Management for policies and procedures failures involving two mutual funds and one separately managed account strategy marketed as ESG investments. 

The US firm has agreed to pay a $4 million penalty, the SEC said in a Nov 22 statement.

The SEC’s order finds that, from April 2017 until February 2020, GSAM had several policies and procedures failures involving the ESG research its investment teams used to select and monitor securities. 

From April 2017 until June 2018, the company “failed to have any written policies and procedures for ESG research in one product, and once policies and procedures were established, it failed to follow them consistently prior to February 2020.”

The SEC said, for example, that GSAM’s policies and procedures required its personnel to complete a questionnaire for every company it planned to include in each product’s investment portfolio prior to the selection; however, personnel completed many of the ESG questionnaires after securities were already selected for inclusion and relied on previous ESG research, which was often conducted in a different manner than what was required in its policies and procedures. GSAM shared information about its policies and procedures, which it failed to follow consistently, with third parties, including intermediaries and the funds’ board of trustees.

The move comes as regulators in a number of jurisdictions are cracking down on the practice of “greenwashing” – a term describing alleged efforts to make investments and financial conduct to be “greener” than it is.

“In response to investor demand, advisers like Goldman Sachs Asset Management are increasingly branding and marketing their funds and strategies as ‘ESG,’” Sanjay Wadhwa, deputy director of the SEC’s Division of Enforcement and head of its Climate and ESG Task Force, said. “When they do, they must establish reasonable policies and procedures governing how the ESG factors will be evaluated as part of the investment process, and then follow those policies and procedures, to avoid providing investors with information about these products that differs from their practices.”

GSAM consented to the entry of the SEC’s order finding that it violated Section 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7. Without admitting or denying the SEC’s findings, GSAM agreed to a cease-and-desist order, a censure, and a $4 million penalty.

SEC “whistleblower” award
The SEC (Nov 28) also announced it had paid out $20 million to a whistleblower who provided “new and critical information” that led to the success of an enforcement action.

"Today’s whistleblower played a crucial role in the ultimate success of the enforcement proceeding," Creola Kelly, Chief of the SEC’s Office of the Whistleblower, said. "Whistleblowers can help advance existing investigations in meaningful ways when their information saves the agency time and resources, and when their contributions allow SEC staff to better understand complicated issues."

Payments are made from an investor protection fund, established by Congress, which is financed entirely through monetary sanctions paid to the SEC by securities law violators. Whistleblower awards can range from 10 to 30 percent of the money collected when the monetary sanctions exceed $1 million.