Goldman Sachs Group Inc
The accord with Massachusetts' securities regulator resolves charges that Goldman analysts gave priority clients, including hedge funds that trade rapidly, short-term trading tips that might be at odds with the bank's published research, violating state law.
The real issue is fairness in the marketplace, William Galvin, Massachusetts' Secretary of the Commonwealth, said in an interview. Certain customers were preferenced over other customers and we regard that as unethical behavior. This is a recurring theme in the securities industry, where some customers get special inside information and others do not.
Stephen Cohen, a Goldman spokesman said the bank is pleased to settle the matter, which includes no admission of fraud.
According to a consent order, Goldman research analysts and traders began holding huddles in 2006 in which they discussed topics, including short-term trading ideas.
Analysts were expected to follow Rules of the Road that included a ban on selective disclosure of pending changes in stock ratings, earnings forecasts and share price targets.
But by 2009, Goldman ranked clients into four tiers and let those in the top two tiers get calls in which analysts discussed ideas from the huddles.
Tier 1 clients were considered powerhouse accounts capable of generating higher commissions. They included several hedge funds that conduct high frequency trading, and an asset manager and mutual fund each based in Massachusetts. None was named in the consent order.
The Tier 1 clients would get calls from senior analysts, while Tier 2 clients would get calls from junior analysts, the order said. Tier 3 and Tier 4 clients had no such access.
Goldman did not deal fairly and objectively with all clients in connection with the dissemination by global investment research equity analysts of certain unpublished short term trading ideas, the order said.
FINRA NEARS END OF PROBE
Goldman has been accused before of treating some clients unfairly.
It is one of 10 Wall Street banks to join a $1.4 billion settlement in 2003 to resolve allegations they issued optimistic stock research to win investment banking business.
Like the other banks, Goldman instituted procedures designed to eliminate bias in stock research.
Galvin said Thursday's accord does not include a finding of fraud or individual responsibility because the state's priority was to end the huddles and insisting upon either would have caused delays.
The Financial Industry Regulatory Authority is close to wrapping up its own investigation into Goldman's trading huddles, a person familiar with that probe said. This person was not authorized to discuss the probe publicly.
Goldman shares were up $2.68, or 2 percent, at $134.27, in afternoon trading.
(Reporting by Jonathan Stempel; editing by Lisa Von Ahn and Andre Grenon)