Goldman Sachs Fined for Hundreds of 'Short' Violations

Tuesday, 04 May 2010 03:28 PM

 

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Goldman Sachs Group's market-making unit has been censured and fined $450,000 after U.S. regulators found hundreds of violations in its processing of customer trades involving equity securities.

NYSE Regulation, a unit of NYSE Euronext, imposed the penalty.

It said half the penalty will be paid to the U.S. Treasury in connection with related U.S. Securities and Exchange Commission civil proceedings.

According to NYSE Regulation, between Dec. 9, 2008, and Jan. 22, 2009, Goldman Sachs Execution & Clearing roughly 385 times accepted orders to "short" equity securities in which it had open "fail-to-deliver" positions, without first borrowing or arranging the borrow the securities as collateral.

The exchange's in-house regulator also said the Goldman unit failed about 68 times over that period to timely close out "fail-to-deliver" positions in equity securities or notify customers about such lapses.

NYSE Regulation also found supervisory violations from Sept. 24, 2008 to Jan. 22, 2009.

Goldman's fine was announced Tuesday, less than three weeks after the U.S. Securities and Exchange Commission filed a civil fraud lawsuit against the investment bank in an unrelated case.

A short sale occurs when a customer borrows a security, sells it in a bet the price will go down, and then buys it back later to replenish the security's lender. A "fail-to-deliver" occurs when a clearing firm fails to satisfy its obligation to deliver a particular security on a particular date.

Goldman consented to the censure and penalty without admitting wrongdoing, NYSE Regulation said.

A Goldman spokesman said the violations resulted from a processing error, and had no financial effect on clients. He also said the unit has improved its automated processes.

The NYSE Regulation decision will become final on May 28.

© 2014 Thomson/Reuters. All rights reserved.

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