Case 3304 Essay

Submitted By Jake-Lisowski
Words: 950
Pages: 4
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Goldman Sachs’ trading huddles practice between 2006­2011 has somewhat violated the law.
The company started the ‘trading huddle’ practice as a meeting to discuss with some of their top clients on trading tips or views on stocks for the short term. This is kind of to benefit selected clients (documents revealed that about 6­60 clients have been contacted) for the short term position. They would discuss how financial market events will trigger particular movements in stocks and Goldman would also specify how long each recommendation last. Securities laws require firms like Goldman to engage in "fair dealing with customers," and prohibit analysts from sharing opinions that are at odds with their true beliefs about a stock. Even though the firm claimed that no one gained an unfair advantage from its trading huddles, and that the short­term­trading ideas were not contrary to the longer­term stock forecasts in its written research. This cannot justify the cause behind Goldman's act. To deal with the whole problem, we should first see what really went wrong with Goldman Sachs’ operations. So in the article, we could see some vital information, such as “ few of the thousands of clients who receive Goldman's written research reports ever hear about the recommendations
”,
“
Critics complain that Goldman's distribution of the trading ideas only to its own traders and key clients hurts other customers who aren't given the opportunity to trade on the information
.”
This means that GS was delivering their service in separate ways and to different levels of customers. Now let’s take a look at what principles GS actually violates. According to FINRA and in the general’s opinion, GS violated that “Recommending Speculative Low­Priced Securities” and “Fair Dealing with
Customers with Regard to Derivative Products or New Financial Products”. For they recommended the wrong stock to their customers or gave information to them based on different levels of the investors.

Goldman was charged a lack of adequate policies and procedures to address the risk that during weekly “huddles,” the firm’s analysts could share material, nonpublic information about upcoming research changes.
The SEC censured the firm and ordered it to cease and desist from committing or causing any violations and any future violations of Section 15(g) of the Exchange
Act. Under the terms of the settlement, Goldman will pay a $22 million penalty, $11 million of which shall be deemed satisfied upon payment by Goldman of an $11 million penalty to FINRA in a related proceeding. Apart from the above filing, it also in the edge of violating the Legal Settlement 2002, the agreement by SEC, NASD, NYSE and 10 of the largest investment banks in the United States to insulate its banking business with the Chinese Wall. Securities firms are required to have an obligation to furnish independent research and disclosure of analyst recommendations.
Analysts
should give out information or advice accessible to all of their clients, either large volume traders or small retail investors. Here, Goldman clearly did not comply to the agreement.

But in the words of GS, they claim that they “don't want to overload other clients with information that isn't relevant to them”. In the aspect of the company, we think what they wanted was to have their customers get the most suitable recommendations, but that considered so differently by individuals.
Viewing this way, it might have been a nice excuse, but we still think they should have just gave all their information to the customers and have themselves do the decisions. In this GS case, we think that there truly existed moral hazard rooted in asymmetric information. They gave information in the way they didn’t really agree with, chose what to tell their customers, and these moves have so many to debate when it comes to ethics
.

However, it has given us
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