According to FINRA, Goldman Sachs & Co. LLC was censured and fined $250,000 for failing to have a qualified independent underwriter participate in an IPO where the firm had a conflict of interest, and for permitting unregistered individuals to perform investment banking activities.

Goldman Sachs served as lead underwriter for an IPO that raised approximately $700 million. The company used the proceeds to purchase LLC units in another entity where a Goldman Sachs affiliate served as a lender and received $96 million from the offering proceeds. This created a conflict of interest that required a qualified independent underwriter (QIU) to participate in preparing the registration statement and prospectus, but no QIU participated.

The firm also permitted four individuals to perform investment banking activities requiring registration during periods when they were not registered with FINRA. These unregistered persons worked on deal teams, advising clients on securities offerings. Notably, each had been previously registered within two years and did not need to take qualification exams, they simply needed to transfer their registrations, which was not done in a timely manner.

FINRA found the firm's supervisory system inadequate. While the firm required new hires to transfer registrations within 30 days and sent notices about registration requirements, there were no procedures to escalate issues when employees failed to comply. Weekly reports tracking registration requirements were not regularly reviewed, and individuals with overdue registrations were permitted on deal teams anyway.

The firm has since modified its procedures to require monthly registration reviews and escalate issues for employees with outstanding registrations.

Investors should understand that QIU requirements exist to protect them from conflicts of interest in underwriting. Registration requirements ensure that individuals advising on securities transactions have demonstrated competency through examination.