12.04.2012
By Simon Miller
Goldman Sachs has agreed to pay a $22m (£13.8m) penalty for failing to address risks in its weekly "huddles", the US's Securities and Exchanges Commission (SEC) announced this afternoon.
The SEC said the huddles - where Goldman stock research analysts met to provide their best trading ideas to firm traders and later passed them on to a select group of top clients - failed to address the risk that analysts could share material, nonpublic information about upcoming research changes.
The SEC in an administrative proceeding found that from 2006 to 2011, Goldman held weekly huddles sometimes attended by sales personnel in which analysts discussed their top short-term trading ideas and traders discussed their views on the markets. In 2007, Goldman began a program known as the Asymmetric Service Initiative (ASI) in which analysts shared information and trading ideas from the huddles with select clients.
According to the SEC’s order, the programs created a serious risk that Goldman’s analysts could share material, nonpublic information about upcoming changes to their published research with ASI clients and the firm’s traders. The SEC found these risks were increased by the fact that many of the clients and traders engaged in frequent, high-volume trading.
The SEC said that despite those risks, Goldman failed to establish adequate policies or adequately enforce and maintain its existing policies to prevent the misuse of material, nonpublic information about upcoming changes to its research. Goldman’s surveillance of trading ahead of research changes — both in connection with huddles and otherwise — was deficient.
As a result, Goldman agreed to settle the charges and will pay a $22m penalty and also agreed to be censured, to be subject to a cease-and-desist order, and to review and revise its written policies and procedures to correct the deficiencies identified by the SEC.
“Higher-risk trading and business strategies require higher-order controls,” said Robert Khuzami, director of the Commission’s division of enforcement. “Despite being on notice from the SEC about the importance of such controls, Goldman failed to implement policies and procedures that adequately controlled the risk that research analysts could preview upcoming ratings changes with select traders and clients.”
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