FINRA recently announced that it has fined Goldman, Sachs & Co. $22 million for failing to supervise equity research analyst communications with traders and clients and for failing to adequately monitor trading in advance of published research changes to detect and prevent possible information breaches by its research analysts. The Securities and Exchange Commission (SEC) also announced a related settlement with Goldman. Pursuant to the settlements, Goldman will pay $11 million each to FINRA and the SEC.
According to the announcement, in 2006, Goldman established a business process known as “trading huddles” to allow research analysts to meet on a weekly basis to share trading ideas with the firm’s traders, who interfaced with clients, and, on occasion, equity salespersons. Apparently, analysts would also discuss specific securities during trading huddles while they were considering changing the published research rating or the conviction list status of the security. Clients were not restricted from participating directly in the trading huddles and had access to the huddle information through research analysts’ calls to certain of the firm’s high priority clients. These calls included discussions of the analysts’ “most interesting and actionable ideas.”
Trading huddles created the significant risk that analysts would disclose material non-public information, including, among other things, previews of ratings changes or changes to conviction list status. According to the findings of FINRA and the SEC’s investigations, despite this risk, Goldman did not have adequate controls in place to monitor communications in trading huddles and by analysts after the huddles.
Goldman also apparently failed to establish an adequate system to monitor for possible trading in advance of research rating or conviction list changes in employee or proprietary trading, institutional customer, or market-making and client-facilitation accounts.
In concluding this settlement, Goldman neither admitted nor denied the charges, but consented to the entry of the SEC’s and FINRA’s findings and admitted to certain facts that were part of a prior settlement with the state of Massachusetts.
The foregoing information, which is publicly available on FINRA’s website, is being provided by The White Law Group.
The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Boca Raton, Florida.
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