Goldman, Sachs & Co. has been charged by the Securities and Exchange
Commission after allegations regarding improper securities lending practices.
In order to settle the charges, Goldman Sachs agreed to pay $15 million.
According to the SEC, brokerage firms like Goldman Sachs are commonly asked
to locate short-selling stocks for investors. If granted, this means that
the firm in question has borrowed, intends to borrow, or believes it can
borrow the security in order to complete the short sale.
Goldman Sachs allegedly violated Regulation SHO when they improperly provided
customers with locates without reviewing the securities to be located.
They accusations state that the locates were inaccurately recorded in
Goldman Sachs’ locate logs. The SEC alleges that employees of the
firm’s Securities Lending Demand Team would process customer locate
requests using what was known as a “fill from autolocate”
system. When prompted, this system allegedly allowed employees to grant
locate requests based on start-of-day inventory reported by large financial
institutions. This was done despite the automated system already showing
the inventory had been depleted.
Further findings by the SEC indicate that Goldman Sachs allegedly failed
to sufficiently differentiate the locates filled by the automated model
and the locates the Demand Team filled using the “fill from autolocate”
system. Goldman Sachs is accused of providing inaccurate documentation
of its Regulation SHO compliance.
The SEC order censures Goldman Sachs and institutes a cease and desist
regarding any future violations of Section 17(a) of the Exchange Act and
Rule 203(b)(1) of Regulation SHO.