Docket No. 564

In the Matter of Goldman, Sachs & Co.

Date: June 19, 1997



DISPOSITION AGREEMENT


This Disposition Agreement ("Agreement") is entered into
between the State Ethics Commission ("Commission") and Goldman,
Sachs & Co. ("Goldman Sachs") pursuant to Section 5 of the
Commission's Enforcement Procedures. This Agreement constitutes a
consented to final Commission order enforceable in the Superior
Court, pursuant to G.L. c. 268B, s.40).

On April 11, 1995, the Commission initiated, pursuant to G.L.
c. 268B, s.4(a), a preliminary inquiry into allegations that
Goldman Sachs had violated the conflict of interest law, G.L. c.
268A. The Commission has concluded the inquiry and, on January 15,
1997, voted to find reasonable cause to believe that Goldman Sachs
violated G.L. c. 268A, s.3(a).

The Commission and Goldman Sachs now agree to the following
facts and conclusions of law:

1 . Goldman Sachs, a New York limited partnership, is an
investment banking and securities firm with headquarters in New
York City. According to the firm's 1995 Annual Review, Goldman
Sachs' activities and sources of revenue include securities
underwriting, sales and trading and asset management. Goldman Sachs
conducts its business through five operating divisions: Investment
Banking, Fixed Income, Equities, Currency and Commodities, and
Asset Management. At the end of 1995, Goldman Sachs' assets totaled
slightly over $1 billion.


I. Steven Kaseta


2. During the relevant time, Steven Kaseta ("Kaseta") was a
Massachusetts deputy treasurer. As deputy treasurer, Kaseta was
responsible for overseeing the day-to-day administrative activities
of the Massachusetts Teachers and Employees Retirement Systems
Trust ("MASTERS Trust").[1]

3. During the relevant time, Daniel J. McCarthy ("McCarthy")
was employed as a vice president at Goldman Sachs' Boston
Institutional Department, which functions within the Equities
Division.

4. During the relevant time, Larry Kohn ("Kohn") was employed
as a vice president with Goldman Sachs Asset Management ("GSAM"),
a division of Goldman Sachs.

5. In May 1991, the Massachusetts Treasurer's Office issued a
Request for Proposals ("RFP") for investment managers for $595
million in the MASTERS Trust domestic equity pension funds. On May
23, 1991, GSAM submitted a proposal in response to the RFP. In
August 1991, the Treasurer's office awarded GSAM a contract to
manage $100 million of these funds. This contract had an effective
annual fee of $400,000 to GSAM.

6. As deputy treasurer, Kaseta was a member of the selection
committee which recommended to the Treasurer the award of the
foregoing contract to GSAM. Furthermore, as a deputy treasurer,
Kaseta was one of the officials responsible for evaluating Goldman
Sachs' performance under the contract from the time the contract
was awarded in August 1991 to September 1993.1' Finally, as a
deputy treasurer, Kaseta was in a position along with the
Treasurer's other staff to recommend that the Treasurer award
similar contracts in the future.

7. On two occasions between April 1991 and May 1993, McCarthy
entertained Kaseta with meals and theater tickets where Kaseta's
pro rata share was worth $50 or more. On March 12, 1992, McCarthy
provided Kaseta with two tickets to "Man of La Mancha" at the
Colonial Theater in Boston, MA. On this same date, McCarthy also
provided Kaseta and his guest with dinner at Locke-Ober Restaurant.
The total cost of this March 12, 1992 entertainment for Kaseta and
his guest was approximately $130. On December 10, 1992, McCarthy
provided Kaseta with drinks and dinner at the Post House Restaurant
in New York City. Kaseta's pro rata

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share of the cost of this December 10, 1992 entertainment was approximately $95.

8. Additionally, on December 5, 1991, and June 26, 1992, Kohn
provided Kaseta with theater tickets for shows in New York City.
The cost of these tickets was approximately $290.

9. Goldman Sachs reimbursed McCarthy and Kohn or paid for all
of the expenses they incurred in entertaining Kaseta. Goldman Sachs
viewed the expenses as business expenses warranting reimbursement.
In total, Goldman Sachs, through McCarthy and Kohn, provided Kaseta
with items with a cost of approximately $500.

10. Section 3(a) of G.L. c. 268A, prohibits anyone from,
directly or indirectly, giving a state employee anything of
substantial value for or because of any official act performed or
to be performed by the state employee.

11. As a deputy state treasurer, Kaseta was a state employee.

12. Anything with a value of $50 or more is of substantial
value for s.3 purposes.[3]

13. The decisions and actions by Kaseta regarding the awarding
and monitoring of contracts to manage MASTERS Trust assets were
official acts performed or to be performed by him as a deputy
treasurer.[4]

14. As a business, Goldman Sachs acts through and is
responsible for the conduct of its employees acting within the
scope of their employment.[5] Therefore, in that Goldman Sachs
through McCarthy and Kohn provided Kaseta with free meals and
tickets of substantial value for or because of official acts
performed or to be performed by Kaseta, Goldman Sachs violated G.L.
c. 268A, s.3(a).

15. The Commission is aware of no evidence that any of the
foregoing gifts were given to Kaseta with the intent to influence
any specific official act by him as a deputy treasurer. The
Commission is also aware of no evidence that Kaseta, in return for
gifts, took any official action which would have affected Goldman
Sachs. In other words, the Commission is aware of no evidence that
there was any quid pro quo.[6] The Commission is aware of no
evidence that Goldman Sachs at any time acted in a manner
inconsistent with the best interests of the MASTERS Trust when
providing investment services. However, even if the conduct of
Goldman Sachs' employees was only intended to create goodwill, it
was still impermissible.


II. Edward M. Murphy


16. From May 1989 to June 1995, Edward M. Murphy ("Murphy")
was the executive director of the Massachusetts Health and
Educational Finance Authority ("HEFA").[7]

17. During the relevant time, Benjamin Wolfe ("Wolfe") was a
Goldman Sachs vice president within the firm's Municipal Bond
Department.[8]

18. For a number of years, including the years in which Murphy
served as HEFA executive director, Goldman Sachs has been a leading
underwriter of bonds for non-profit institutions in Massachusetts.
As an underwriter, Goldman Sachs would test the market for a bond,
establish a price for the bond, and then agree to sell all or part
of the bond issuance at that price.

19. During Murphy's tenure at HEFA, Wolfe was one of Goldman
Sachs' senior investment bankers for non-profit institutions in
Massachusetts.

20. Between 1989 and 1995, HEFA issued approximately $6 to $8
billion in new tax-exempt bonds. HEFA would normally receive the
proceeds of the sale of the bonds, oversee the payment of the
costs of the issuance, such as attorneys' and underwriters' fees, and
remit the balance to the borrowing institution. HEFA would also
monitor the borrowing institution's repayment to the bondholders.

21. Goldman Sachs was the lead underwriter for approximately
25 percent of all of the bonds issued by HEFA between 1989 and
1995.

22. As executive director, Murphy assigned the HEFA staff who
would work with a borrowing institution in developing a bond
proposal. Once the proposal was developed, it had to be presented
to and approved by the HEFA Board of Directors, Murphy assigned who
from the HEFA staff would make the presentation to the board
pertaining to the bond. More generally, all agenda items for board
meetings had to be approved by Murphy, otherwise, the items would
not be placed on the agenda.

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23. The HEFA board reserves the right not to enter into a bond
transaction with a particular underwriter if it does not wish to do
so.[9]

24. Goldman Sachs' profits from HEFA bonds, referred to as its
"take down," was $8 per thousand during Murphy's early tenure, but
later changed to $5 per thousand. (The take down is based on the
bond prices. For example, in a $100 million dollar transaction, if
Goldman Sachs' take down was $6 per thousand, its fees would amount
to approximately $600,000.)

25. In addition to tax-exempt bond financing, HEFA also agrees
to support "pools." A "pool" is typically a transaction where one
or more borrowers finance more than one project or need by one
umbrella bond issuance. During Murphy's tenure at HEFA, one such
pool was entered into by HEFA with a hospital in 1991. That
hospital was a Goldman Sachs client and was in the process of
building a medical research facility. A pool was organized to make
the management of funding easier. HEFA chose Goldman Sachs to
manage the pool.

26. In 1991 or 1992, HEFA issued an RFP for a short-term
investment manager for its bond proceeds. Goldman Sachs submitted
a bid on the RFP. Goldman Sachs was not chosen. In 1994, HEFA was
remarketing a pool for a firm which went out of business. HEFA
issued an RFP, on which Goldman Sachs put in a bid. Again, Goldman
Sachs was not chosen.

27. As executive director, Murphy participated in each of the
foregoing decisions regarding which firm would be HEFA's short-term
investment manager and which firm would manage a given pool.

28. On the following three occasions Wolfe provided Murphy and
his wife with entertainment where Murphy's pro rata share cost $50
or more:

(a) a July 19, 1990 dinner at Cafe Budapest in Boston,
attended by Murphy, Mrs. Murphy, Wolfe and Mrs. Wolfe. The
total cost for the dinner was $284.30; Murphy's pro rata share
was $142.16;

(b) a November 20, 1992 dinner at Le Bernadin Restaurant in
New York City, NY, and theater tickets to "Phantom of the
Opera," for Murphy, Mrs. Murphy, Wolfe and Mrs. Wolfe. The
total cost was $735; Murphy's pro rata share was $367.50; and

(c) a October 23, 1993 dinner at Christopher's Restaurant in
Phoenix, AZ, attended by Murphy, Mrs. Murphy, Wolfe and Mrs.
Wolfe and two other couples. The total cost for the
entertainment was $482.86; Murphy's pro rata share was
$120.72.

29. Goldman Sachs reimbursed Wolfe for the above expenses
incurred in entertaining Murphy. Goldman Sachs viewed the expenses
as business expenses warranting reimbursement. In total, Goldman
Sachs, through Wolfe, provided Murphy with items with a cost of
approximately $630.

30. As the HEFA executive director, Murphy was a state
employee.

31. The decisions and actions by Murphy regarding what items
would go on the board's agenda, which staff would be assigned to a
bond proposal, the choice of a manager for a pool or a short-term
investment manager for bond proceeds were official acts performed
or to be performed.

32. As stated above, Goldman Sachs acts through and is
responsible for the conduct of its employees acting within the
scope of their employment. Therefore, Goldman Sachs violated s.3(a)
by through Wolfe providing Murphy with free meals and tickets, for
or because of official acts performed or to be performed by Murphy
as HEFA executive director.

33. The Commission is aware of no evidence that any of the
foregoing gifts were given to Murphy with the intent to influence
any specific official act by him as HEFA executive director. The
Commission is also aware of no evidence that Murphy in return for
gifts took any official action which would have affected Goldman
Sachs. In other words, the Commission is aware of no evidence that
there was any quid pro quo.19 The Commission is aware of no
evidence that Goldman Sachs at any time acted in a manner
inconsistent with the best interests of HEFA when providing
underwriter services. However, even if the conduct of Goldman
Sachs' employees was only intended to create goodwill, it was still
impermissible.

34. Goldman Sachs fully cooperated with the Commission's
investigation.

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Remedy


In view of the foregoing violations of G.L. c. 268A, s.3(a),
the Commission has determined that the public interest would be
served by the disposition of this inquiry without further
proceedings, on the basis of the following terms and conditions
agreed to by Goldman Sachs:

(1) that Goldman Sachs pay to the Commission the sum of $3,500
as a civil fine for violating G.L. c. 268A, s.3(a);

(2) that Goldman Sachs waive all rights to contest the
findings of fact, conclusions of law in terms and conditions
contained in this agreement in any related administrative or
judicial proceeding to which the Commission is or may be a
party.

-------------------------


[1] The MASTERS Trust is the combined investment fund for
state employees and state teachers retirement annuities. G.L. c.
32, s.23 establishes a non-paid Pension Investment Committee
("PIC") to oversee the MASTERS Trust. The day-to-day administrative
activities of the trust are carried out by the Massachusetts
Treasurer's Office. The MASTERS trust is a broadly diversified
portfolio which stood at $5.532 billion at the end of February
1991.

[2] Kaseta resigned from the Treasurer's office in September
1993.

[3] See Commonwealth v. Famigletti, 4 Mass. App. 584 (1976);
ECCOI-93-14.

[4] "Official act" is defined as any decision or action in a
particular matter or in the enactment of legislation.

[5] See John Hancock, 1994 SEC 646; Mass Medical Society, 1995
SEC 751.

[6] Indeed, any such quid pro quo understanding would raise
extremely serious concerns under the bribery section of the
conflict of interest law, G.L. c. 268A, s.2. Section 2 is not
applicable in this case, however, as there was no evidence of such
a quid pro quo between the donors and Kaseta.

[7] HEFA, an independent authority, was created by special
legislation in 1968. Mass. St. 1968, c. 614. HEFA provides capital
financing to public and non-profit institutions for higher
education, non-profit hospitals, nursing homes, and their
affiliates as well as non-profit research and cultural institutions
and schools for the handicapped. This financing is accomplished
primarily through HEFA issuing the tax exempt bonds. The monies
raised are used for project acquisitions, construction, renovation,
refinancing, arid equipment financing.

[8] Wolfe left Goldman Sachs in May 1995.

[9] According to Murphy, this policy has never been applied.

[10] As discussed in fn. 6 above, any such quid pro quo would
raise c. 268A, s.2 issues.

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End of Decision