The US Commodity Futures Trading Commission (CFTC) has issued an order settling charges against Goldman Sachs & Co. The order finds Goldman violated the cease-and-desist provision of a prior settlement agreement in connection with a failure to properly record and retain mobile device calls made by its traders at the onset of the Covid-19 pandemic, in violation of recordkeeping rules.

The order requires Goldman to pay a $5.5m civil monetary penalty and to cease and desist from further violations of the recordkeeping provisions of the Commodity Exchange Act and CFTC regulations, as charged.

The audio recording and retention failures arose in March 2020, according to the CFTC, when the Covid-19 pandemic drove more employees to use their mobile phones and a vendor’s service that Goldman relied on to record such phone calls failed more frequently.

Vendor service failure

The vendor service recorded mobile calls using the same recording hardware that Goldman used for recording calls made in its offices, but the recording infrastructure wasn’t always reliable, the CFTC said.

As a result, between at least March 2020 and September 2020, Goldman failed to record and retain thousands of audio files and didn’t create any alternative written records for calls not recorded. Because Goldman had used the vendor’s services with the same recording architecture prior to spring of 2020, it is possible that the flaw led to the same failure to record calls prior to that period, the CFTC noted.

Between at least March 2020 and September 2020, Goldman failed to record and retain thousands of audio files and didn’t create any alternative written records for calls not recorded.

Without considering the 2019 prior order about these specific allegations, Goldman has been sanctioned previously for failures pertaining to its traders’ communications – recordings that Goldman, as a swap dealer, was required to make and keep.

Messaging apps

In September 2022, Goldman and over a dozen other financial services firms agreed to pay a total of about $200m to the SEC and CFTC over admissions its traders used banned messaging apps, such as text messaging and WhatsApp, to discuss business, in violation of recordkeeping rules. 

Earlier this month, the SEC and CFTC fined nine Wall Street companies $549m over employees’ use of personal messaging apps to discuss deals, trades and other business matters in breach of rules that require firms to retain certain work-related communications.

The bank discovered the recording issue for which the latest fine has been imposed when it was investigating employee complaints about poor call quality when using the vendor’s system. Goldman did an initial interim fix of the system in May 2020 and replaced it with an alternative system in September 2020.

Software on computers

Separately, Goldman also failed to record calls made through its so-called soft turret, or software on computers designed to replicate the experience of a hard-wired trading turret, a specialized phone setup used to facilitate trading. The software allowed Goldman employees to make both handset and speaker calls via their computer.

The bank discovered in May 2020 that a software issue caused the system to sometimes fail to record audio, but it only implemented a permanent fix through a software update in June 2022. 

The CFTC also said Goldman failed to record the phone lines of a trading and sales desk for 20 days in 2014.

Goldman provided assistance to the CFTC in its investigation, conducting impact analyses for both of the vendor issues and voluntarily sharing the results of those analyses with the agency’s staff.

Dodd-Frank and Consumer Protection Act

In April 2012, the CFTC adopted new rules on swap-data recordkeeping and reporting requirements, as authorized by the Dodd-Frank Wall Street Reform and Consumer Protection Act.

They apply to swap data recordkeeping and reporting requirements for swap data repositories, derivatives clearing organizations, designated contract markets, swap execution facilities, swap dealers, major swap participants, and swap counterparties who are neither swap dealers nor major swap participants.

Goldman registered with the Commission in 1979 as a futures commission merchant and subsequently as a commodity trading advisor and commodity pool operator.  

Statements from commissioners

“Goldman is no stranger to operating in a highly regulated derivatives market,” says Commissioner Kristin N Johnson in a statement dissenting from the order.

“The recordkeeping requirements at issue, specifically relating to daily trading records, serve a critical purpose by ensuring that pre-execution trade information that leads to the execution of a swap is available to the Commission and relevant self-regulatory organizations to conduct a comprehensive and accurate trade reconstruction for the swap and assess whether a swap dealer is complying with the CFTC’s swap dealer requirements,” she says.

“The civil monetary penalty imposed today is quite literally less than the profit Goldman can earn by the end of the day today.”

CFTC Commissioner Kristin N Johnson

But she wrote her statement to lament the small size of the penalty in this case. “The Commission’s penalties must be rightly calibrated to deter repeat offenders and to prevent anyone from perceiving penalties as the cost of doing business,” she says.

As she observes: “The civil monetary penalty imposed today is quite literally less than the profit Goldman can earn by the end of the day today.”

And dissenting Commissioner Caroline D Pham calls the enforcement action fundamentally unfair, unjust, and that it does not best serve the public interest. She says the CFTC “is not doing the right thing on vendor issues arising out of the unprecedented move to remote work because of the Covid-19 pandemic, and the order reflects the agency’s trend of “examination by enforcement”.