By Sarah N. Lynch and Aruna Viswanatha
WASHINGTON (Reuters) - Goldman Sachs
The U.S. Securities and Exchange Commission and the Financial Industry Regulatory Authority said on Thursday the Wall Street bank didn't have adequate policies and procedures to make sure non-public information wasn't passed on from its analysts.
The SEC said that Goldman policy, for example, required broad distribution of market-sensitive statements from analysts about the companies they covered.
But the policy did not apply to certain internal messages commenting on "short-term trading issues or market color," and Goldman failed to define what those exceptions included, regulators said.
"Higher-risk trading and business strategies require higher-order controls," said Robert Khuzami, the SEC's enforcement director.
"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."
Goldman agreed to pay the penalty, split between the two regulators, and revise its policies to correct the problem.
A spokesman for the bank, Michael DuVally, said Goldman was pleased to resolve the matter.
'FAVORITE IDEA'
The regulators said the weekly huddles took place from 2006 to 2011 and that analysts would discuss "high-conviction" short-term trading ideas and other market color with traders.
Then in 2007, Goldman launched a program called the Asymmetric Service Initiative that allowed research analysts to call a select group of priority clients.
According to the settlement with FINRA, Goldman at times failed to properly monitor the conversations that took place in the huddles to determine whether any previews of upcoming research changes were discussed.
In late 2008, for instance, FINRA said one analyst had received the OK to add a company to a Goldman's list of best investment ideas.
The next day in a huddle, the analyst told the others that the company remained a "favorite idea."
The following day, FINRA said, Goldman published a report adding the stock to its "conviction buy list."
ADMITTED FACTS
Goldman settled a parallel civil case over the huddles with Massachusetts securities regulators in 2011 in which the bank paid a $10 million fine and admitted to certain factual findings, an unusual occurrence for civil settlements.
In the SEC and FINRA statements on the settlement, the bank admitted to the same facts it admitted in the Massachusetts case.
Goldman's settlements follow a major 2003 deal, wherein a group of big Wall Street firms including Goldman negotiated a $1.4 billion settlement over allegations that they issued overly optimistic research on companies to win their investment banking business.
As part of that settlement, 10 banks agreed to separate their research and banking businesses with a so-called "Chinese wall" to avoid conflicts of interest.
At issue in the Thursday agreement is whether Goldman was meeting the terms and spirit of the earlier settlement.
The SEC said it considers "a variety of factors, including prior enforcement actions," to determine what sanction to impose.
(Editing by Gerald E. McCormick, Andre Grenon and Steve Orlofsky)
