Goldman fined $2m for fraud conducted by customers

NEW YORK – The New York Stock Exchange (NYSE) and the Securities and Exchange Commission (SEC) have fined the clearing affiliate of Goldman Sachs $2m for an illegal trading scheme conducted by customers through their accounts at the firm.

The SEC and NYSE alleged that between 2000 and 2002, a number of Goldman's customers carried out the illegal short-selling scheme by placing their orders to sell through Goldman's direct market access automated trading system and falsely marked the orders 'long'. Relying solely on the way its customers marked their orders, Goldman executed the transactions as long sales.

Because the customers sold the securities short and did not have the securities at settlement date, Goldman delivered borrowed and proprietary securities to the brokers for the purchasers to settle the customers' purported 'long' sales.

The complaint accused the affiliate, Goldman Sachs Execution and Clearing of violating regulations requiring brokers to accurately mark sales long or short and restricting stock loans on long sales. It concluded that if Goldman had instituted and maintained appropriate procedures, it could have discovered through its own records the customers' illegal activity.

The SEC Order and NYSE Decision found that Goldman's exclusive reliance on its customers' representations that they owned the offered securities was unreasonable.

Goldman was censured for its conduct and ordered to pay $2 million in civil penalties and fines, in addition to an order to cease and desist from committing future violations. Goldman consented to the order and decision without admitting or denying the SEC or the NYSE's findings.