As part of a securities investigation, the firm Goldman, Sachs & Co. has agreed to an $800,000 settlement with the State of Kansas.

As part of a securities investigation, the firm Goldman, Sachs & Co. has agreed to an $800,000 settlement with the State of Kansas.

On Friday, Kansas Securities Commissioner Marc Wilson announced the results of the settlement.

The case alleged Goldman, Sachs & Co. misled Kansas investors about the safety and liquidity of the auction rate securities (ARS) market.

“This settlement sends a strong message to Goldman Sachs and other Wall Street firms that Kansas investors demand integrity from securities dealers,” said Wilson. “Full and truthful disclosure is a cornerstone without which markets cannot function. If firms do not meet these high standards, we will take action on behalf of Kansas investors.”

During the investigation, regulators discovered that the firm’s securities dealers failed to adequately inform customers and train employees on the risks associated with purchasing ARS. Although marketed and sold to investors as safe, liquid and cash-like investments, ARS are actually long-term investments.  

Wilson said they are subject to a complex auction process that failed in early 2008 when the firms marketing ARS stopped providing liquidity to the market. He added that investors not only saw lower returns, but they were also unable to access their money for current needs.

“At critical times, Kansas investors and small businesses were not able to access their own money, and that is completely unacceptable,” said Wilson. “It is our hope these things never happen, but when abuses like this occur our job is to be the advocate for Kansas investors and level the playing field.”

The settlement also requires Goldman, Sachs & Co. to pay other remediation to investors. Wilson did not say what that remediation amounted to.

The fine paid by the firm will be placed in the Kansas Investor Education Fund. The fund gives grants to organizations which provide fraud prevention and financial literacy services and otherwise helps KSC carry out its investor education legislative mandate.

The Office of the Kansas Securities Commissioner has also reached settlement agreements with 11 other firms in similar cases, with fines totaling more than $5.9 million. These previous settlements made their way to the State General Fund.

Matthew Clark can be reached at matthew.clark@morningsun.net or at 620-231-2600, Ext. 140