A Goldman, Sachs process known as "trading huddles" was supposed to allow research analysts to share ideas with the firm's traders, so they could provide better advice to their clients. Whether that happened or not is open to debate but the Financial Industry Regulatory Authority (FINRA) says the huddles "created the significant risk that analysts would disclose material non-public information."
Despite that risk, FINRA said Goldman did not have adequate controls in place to monitor communications in trading huddles and by analysts after the huddles, and today it fined Goldman $22 million for failing to adequately supervise the huddles. The Securities and Exchange Commission (SEC) announced a related settlement with Goldman. Pursuant to the settlements, Goldman will pay $11 million each to FINRA and the SEC.
FINRA said 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. Despite this risk, Goldman did not have adequate controls in place to monitor communications in trading huddles and by analysts after the huddles.
Goldman did not adequately review discussions in the trading huddles to determine whether an equity research analyst may have previewed an upcoming ratings change, FINRA charged. For example, an analyst said of a particular company in a trading huddle in 2008 that "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," and to add the stock to Goldman's conviction sell list. Goldman published an equity research report making these changes that same day.
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.as conducted by Sandra Del Buono and Jeanne Elmadany under the supervision of James Day, Enforcement Chief Counsel and Jessica Hopper, Vice President, Enforcement.
Investors can obtain more information about, and the disciplinary record of, any FINRA-registered broker or brokerage firm by using FINRA's BrokerCheck. FINRA makes BrokerCheck available at no charge. In 2011, members of the public used this service to conduct 14.2 million reviews of broker or firm records. Investors can access BrokerCheck at www.finra.org/brokercheck or by calling (800) 289-9999. Investors may find copies of this disciplinary action as well as other disciplinary documents in FINRA's Disciplinary Actions Online database.