Posted On: April 14, 2012 by Shepherd Smith Edwards & Kantas LTD LLP

Goldman Sachs to Pay $22M For Alleged Lack of Proper Internal Controls That Allowed Analysts to Attend Trading Huddles and Tip Favored Clients

Accused of not putting in place policies to prevent analyst huddles, Goldman Sachs Group Inc. (GS) will settle for $22 million the allegations made against it by US regulators. According to the Securities and Exchange Commission and FINRA, due to the nature of the financial firm’s internal control system research analysts were able to share non-public information with select clients and traders.

To settle the securities case, Goldman will pay $11 million each to FINRA and the SEC. It also consented to refrain from committing future violations and it will reevaluate and modify its written policies and procedures so that compliance won’t be a problem in the future. The financial firm has agreed to have the SEC censure it. By settling Goldman is not denying or admitting to the allegations.

Meantime, FINRA claimed that Goldman neglected to identify and adequately investigate the increase in trading in the financial firm’s propriety account before changes were made to analysis and research that were published. The SRO says that certain transactions should have been reviewed.

This is not the first time that Goldman has gotten in trouble about its allegedly inadequate control systems. Last year, it agreed to pay $10 million to the Massachusetts Securities Division over ASI and the huddles. In 2003, the financial firm paid $9.3 million over allegations that its policies and controls were not adequate enough to stop privileged information about certain US Treasury bonds from being misused.

The latest securities actions are related to two programs that the financial firm created that allegedly encouraged analysts to share non-public, valued information with select clients. The SEC says that during weekly “huddles” between 2006 and 2011, Goldman analysts would share their perspectives on “market color” and short-term trading with company traders. Sales employees were also sometimes present, and until 2009, employees from the financial firm’s Franchise Risk Management Group who were allowed to set up large, long-term positions for Goldman also participated in the huddles.

Also in 2007, the financial firm established the Asymmetric Service Initiative. This program let analysts share ideas and information that they acquired at the huddles with a favored group made up of approximately 180 investment management and hedge fund clients.

The SEC contends that ASI and the huddles occurred so that Goldman’s traders’ performances would improve and there would be more revenue in the form of commissions. The financial firm even let analysts know that it would be monitoring whether ideas discussed at the huddles succeeded and that this would be a factor in performance evaluations. The Commission said that the two programs created a serious risk, especially considering that a lot of ASI clients were traders who did so often and in high volume.

Meantime, FINRA claimed that before changes were made to published analysis and research, Goldman would neglect to identify and adequately investigate the increase in trading in the financial firm’s proprietary account. The SRO says that there were certain transactions that should have been reviewed.

This is not the first time that Goldman has gotten in trouble over its allegedly inadequate control systems. Last year, it agreed to pay $10 million to the Massachusetts Securities Division over ASI and the huddles. In 2003, the financial firm paid $9.3 million over allegations that its policies and controls were not adequate enough to stop privileged information about certain US Treasury bonds from being misused.

Read the SEC order in this case (PDF)

Read the FINRA order in this case (PDF)

Goldman Sachs to Pay $22 Million Over Analyst Huddle Claims, Bloomberg, April 12, 2012


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Our investment fraud lawyers at Shepherd Smith Edwards and Kantas, LTD, LLP represents individual and institutional clients with cases against financial firms. Contact our stockbroker fraud lawyers today.

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