The Financial Industry Regulatory Authority (FINRA) fined Goldman Sachs & Co. LLC for alleged rule violations.
Between February 2009 and mid-April 2023, Goldman failed to include stock options, warrants, units and certain over-the-counter equity securities in nine surveillance reports designed to detect potentially manipulative proprietary and client transactions. These securities were excluded for extended periods ranging from approximately two years to more than 12 years.
For example, a Goldman surveillance report designed to detect potential wash trades excluded warrants from October 2010 to March 2021 and excluded rights and units from October 2010 to April 2022. Additionally, Goldman’s surveillance reports designed to identify potential open and close signals Warrants, warrants, shares and certain OTC equity securities from the start of reporting in February 2009 to April 2018.
As a result of the gaps in its supervisory reporting, Goldman was unable to conduct reasonable supervisory reviews of trading activity in stock options, warrants, units and certain OTC equity securities for potential fraud. The nine affected reports would have identified approximately 5,000 alerts (based on extrapolations from available data) of potentially fraudulent trading activity in these securities from February 2009 to mid-April 2023.
Goldman added the missing securities to the surveillance reports either in response to FINRA’s investigation or through the firm’s adoption of new surveillance reports. Goldman completed remediation for all surveillance reports by April 2023.
Goldman’s supervisory system, including its written procedures, also did not require that its automated supervisory reports be reviewed to ensure that they included all relevant securities traded as part of the firm’s business. As a result, the company failed to detect that nine surveillance reports of potentially deceptive transactions excluded stock options, warrants, units and certain over-the-counter equity securities. In February 2021, Goldman implemented inspections to identify whether any security has been inadvertently excluded from new or amended surveillance reports.
By failing to have a reasonably designed supervisory system, Goldman violated NASD Rule 3010 and FINRA Rules 3110 and 2010.
Goldman has agreed to a reprimand and fine of $512,500, of which $37,000 will be paid to FINRA. The balance will be paid to Cboe BYX Exchange, Inc. Cboe BZX Exchange, Inc. Cboe EDGA Exchange, Inc. Cboe EDGX Exchange, Inc. Investors Exchange LLC; The Nasdaq Stock Market LLC; Nasdaq BX, Inc. Nasdaq Phlx LLC; The New York Stock Exchange LLC; NYSE American LLC; NYSE Arca, Inc. NYSE Chicago, Inc. and NYSE National, Inc.