ot: Goldman Sachs fined $2M (WHAT WERE ACTUAL DAMAGES TO INVESTORS VS. THE FINE THEY RECIEVED?) YOU SEE MY POINT????
SEC and NYSE say firm allowed clients to make illegal short sales. Bank of America fined in separate case.
Bloomberg News
Email this story
Printer friendly format
March 15, 2007
Goldman Sachs Group Inc., the world's biggest securities firm by market value, was fined $2 million by U.S. market regulators for allowing clients to make illegal short sales before stock offerings.
Goldman didn't follow procedures that may have uncovered a pattern of illegal trades from 2000 to 2002, the Securities and Exchange Commission and the New York Stock Exchange said in statements yesterday.
If there are signs clients are lying, "the broker must investigate the customer's trading," David Nelson, an SEC regional director overseeing the case, said in a statement.
Regulators are increasingly holding prime brokers accountable if they don't act on signs that hedge funds and other clients are conducting illegal trades. Susan Merrill, NYSE's enforcement chief, warned in November that watchdogs would take action if brokers didn't prevent abuses like making improper short sales before public offerings.
By forcing brokers to be vigilant, regulators can curb and catch more illegal trades, said James Cox, a Duke University law professor specializing in securities fraud.
"Brokers are professionals different than plumbers, who don't have a civic or social obligation," he said.
In a separate action, the SEC fined Bank of America Corp. $26 million, ending a 6-year probe into the company's misuse of its own analysts' research. Charlotte, N.C.-based Bank of America is the second-largest U.S. bank by assets.
In short selling, traders bet a stock's price will decline by borrowing shares to sell in the open market, with the intention of repurchasing them later and pocketing the difference.
Goldman's clients broke rules by seeking to cover their short sales with stocks to be bought in secondary offerings, the SEC said. That let them take advantage of expected price drops when the shares hit the market.
