Goldman Sachs To Pay $22 Million To Settle 'Huddles' Probe

Dow Jones Newswires | April 12, 2012
By Mia Lamar and Brett Philbin

--Goldman agrees to pay $11 million each to the SEC and Finra

--Regulators say Goldman lacked adequate policies and procedures for research huddles

--Goldman paid $10 million to settle similar investigation by Massachusetts securities regulator 

(Updates with information on Goldman neither admitting nor denying the charges in the second paragraph, background on Goldman warning of discussions with regulators in the fifth paragraph, examples of discussions in the huddles in the sixth and seventh paragraphs and background on trading huddles in the last paragraph.) 

By Brett Philbin and Mia Lamar


NEW YORK (Dow Jones)--Goldman Sachs Group Inc. (GS) agreed to pay $22 million to securities regulators to settle claims it inappropriately funneled trading ideas to preferred clients.

The securities firm will pay $11 million each to the Securities and Exchange Commission and the Financial Industry Regulatory Authority and agreed to the settlement without admitting or denying the charges. Goldman also agreed to be censured, subject to a cease-and-desist order and to review and revise its written policies and procedures on the matter.

The investigation focused on meetings from 2006 to 2011 called research huddles, in which Goldman analysts allegedly discussed "their top short term trading ideas and traders discussed their views on the markets," according to the SEC.

The regulators said Goldman in 2007 began a program in which the analysts shared information and trading ideas from those huddles with select clients.

Goldman last year agreed to pay $10 million to settle a similar investigation by Massachusetts's securities regulator. In previous regulatory filings following that settlement, Goldman had said it was in discussions with the SEC and Finra "concerning resolutions of their proposed charges."

A Goldman Sachs spokesman said, "we are pleased to have resolved this matter."

In the statement Thursday, regulators said Goldman didn't "adequately review" discussions in the trading huddles to " determine whether an equity research analyst may have previewed an upcoming ratings change."

In one such example, Finra said a company analyst--in a 2008 trading huddle--said "we expect companies with consumer and small business exposure to be under pressure in the current environment, including [the company]." The next day, the analyst "sought and received approval to downgrade the company" from neutral to sell, while Goldman published a research report reflecting that change.

In a statement, Robert S. Khuzami, director of the SEC's division of enforcement, said, "higher-risk trading and business strategies require higher-order controls."

He added, that "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."

The development of the trading huddles followed a 2003 global settlement with regulators, in which Goldman and ten other firms collectively agreed to pay $1.4 billion to resolve charges over too-cozy relationships between investment bankers and analysts.

Following that penalty, Goldman developed new ways to interact with the firm's clients and win more business, including the huddles.