Bloomberg News

Goldman Sachs Settles Massachusetts Probe of ‘Huddles’

June 09, 2011

(Updates with status of Finra investigation in the fifth paragraph.)

June 9 (Bloomberg) -- Goldman Sachs Group Inc. agreed to pay a $10 million fine and stop holding private meetings of stock analysts and traders known as “huddles” to settle an investigation by Massachusetts’s chief securities regulator.

The settlement ends a two-year probe by William Galvin, the secretary of the commonwealth, into New York-based Goldman Sachs’s “Asymmetric Service Initiative,” in which information on analysts’ trading ideas was disseminated earlier to favored clients. The company will “permanently discontinue” the practice, Galvin’s office said in a statement today.

The investigation concluded that the dissemination by equity analysts of unpublished short-term trading ideas was “a dishonest and unethical violation of the Massachusetts Uniform Securities Act by putting certain clients at an advantage over others,” Galvin’s office said in the statement.

Goldman Sachs analysts, who publish stock recommendations for long-term investments, attended weekly meetings where they shared short-term trading ideas, the Wall Street Journal reported in 2009, citing internal company documents. Galvin’s office sent a subpoena to Goldman Sachs shortly after the article was published and the Securities and Exchange Commission, and Financial Industry Regulatory Authority, which polices brokerages, also began examining the practice.

Finra’s Probe

The authority, known as Finra, is close to concluding its investigation of Goldman Sachs’s trading huddles, a person familiar with the situation said today. The person spoke on condition of anonymity because the details of the investigation aren’t public. Michelle Ong, a spokeswoman for Finra, said she couldn’t comment. John Nester, a spokesman for the SEC, declined to comment.

“We are pleased to have resolved this matter with the Massachusetts securities division,” Stephen Cohen, a Goldman Sachs spokesman in New York, said in an interview.

While the settlement finds that Goldman Sachs “engaged in dishonorable or dishonest conduct,” it adds that nothing in the settlement “shall be construed as a finding or admission of fraud.”

--With assistance from Joshua Gallu in Washington. Editors: Rick Green, Dan Kraut

To contact the reporters on this story: Christine Harper in New York at charper@bloomberg.net.

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net;


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