Goldman Sachs to pay $15 million to settle SEC stock lending case
Goldman Sachs & Co (GS.N) will pay $15 million to settle civil charges that its securities lending practices violated federal regulations, the U.S. Securities and Exchange Commission said on Thursday.
Goldman made improper representations to customers who requested that the firm locate certain stocks for short selling, the SEC said. Goldman told those customers that it had arranged to borrow, or believed it could borrow, the security to settle the short sale, a process known as "granting locates."
Goldman, however, had not performed an adequate review of the securities customers had asked it to locate, the SEC said.
"We are pleased to have resolved this matter with the SEC," A Goldman Sachs spokeswoman said.
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At issue is U.S. regulation for short selling that requires brokerages to enter an agreement to borrow securities on behalf of customers or to have "reasonable grounds" for believing that it can borrow the security.
A team of Goldman employees, between 2008 and 2013, relied on an automated system to fill customers' stock requests. But a problem with the system allowed employees to grant customers' "locate" requests based on the inventory reported to Goldman early in the day by other large financial institutions, even after the inventory had been depleted as the team processed requests during the day.
Additionally, the team did not check other possible sources for securities or perform a "meaningful further review," the SEC said.
The SEC settlement focuses on rule violations and does not describe any instances of customers whose short selling was foiled because of Goldman's system.
Goldman identified problems with its automated stock location system in 2011. The firm phased in the new system between 2011 and 2013, but employees continued to improperly process customers' requests, the SEC said.
Goldman gave "incomplete and unclear" responses to information requests from SEC compliance examiners in 2013 about the firm's securities lending practices, the SEC said.
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