Goldman Sachs Settles with FINRA, Accepts $512,500 Fine for Surveillance Failures
Goldman Sachs has agreed to a settlement with FINRA, accepting a censure and a $512,500 fine. The settlement arises from Goldman's failure to include warrants, rights, units, and certain over-the-counter (OTC) equity securities in nine of its automated surveillance reports between February 2009 and mid-April 2023.
Goldman Sachs, a full-service broker-dealer headquartered in New York City and with over 7,700 registered persons and more than 75 branch offices, has been a FINRA member since 1936.
According to the Letter of Acceptance, Waiver, and Consent (AWC) submitted by Goldman Sachs, the firm's oversight lapses occurred over an extended period, ranging from approximately two years to more than 12 years. The surveillance reports, designed to identify potentially manipulative proprietary and customer trading activity, excluded these securities for significant durations.
The lapses were discovered during a cross-market surveillance conducted by FINRA. FINRA Rule 3110, and its predecessor NASD Rule 3010, mandates member firms to establish and maintain a supervisory system reasonably designed to achieve compliance with applicable securities laws and regulations, including rules set by FINRA.
Goldman's failure to include certain securities in its surveillance reports resulted in a violation of NASD Rule 3010 and FINRA Rules 3110 and 2010. FINRA Rule 3110, which superseded NASD Rule 3010 in 2014, requires member firms to observe high standards of commercial honor and just and equitable principles of trade.
The settlement states that between February 2009 and mid-April 2023, Goldman's supervisory system did not require a review of its automated surveillance reports to ensure the inclusion of all relevant securities traded by the firm. This failure prevented the detection of potentially manipulative trading activities related to warrants, rights, units, and certain OTC equity securities.
Goldman Sachs admitted to the findings outlined by FINRA without admitting or denying the violations. As part of the settlement, Goldman agreed to a censure and a $512,500 fine, with $37,000 of the fine payable to FINRA. The remainder will be distributed to various exchanges, including Cboe BYX Exchange, Inc., Cboe BZX Exchange, Inc., Investors Exchange LLC, Nasdaq, The New York Stock Exchange LLC, and others.
Respondent Goldman Sachs & Co. LLC has waived certain procedural rights granted under FINRA's Code of Procedure, including the right to have a complaint specifying allegations issued against it, the right to be notified and answer in writing, the right to a disciplinary hearing before a hearing panel, and the right to appeal any decision to the National Adjudicatory Council (NAC) and the U.S. Securities and Exchange Commission.
The settlement serves as a reminder of the importance of robust surveillance systems in financial institutions to detect and prevent potential market manipulations, ensuring the integrity and fairness of the securities market.
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