Goldman Might Be Charged With Improperly Passing Along Tips

05/11/2011 08:41 am ET | Updated Jul 11, 2011

NEW YORK (Lauren Tara LaCapra) - Massachusetts securities regulators may charge Goldman Sachs Group Inc with improperly passing along analysts' tips to top clients.

The Massachusetts Securities Division is weighing administrative proceedings against the bank over communications among its analysts, sales staff and clients, according to Goldman's quarterly filing with U.S. regulators.

The U.S. Securities and Exchange Commission, Financial Industry Regulatory Authority and others are investigating similar matters, Goldman said. The investment bank said it is cooperating with the probes but did not provide more detail.

Goldman and its Wall Street peers are dealing with myriad regulatory probes in the wake of the financial crisis.

Massachusetts Secretary of State William Galvin, the state's top financial regulator, said in the past that he was investigating Goldman and had subpoenaed information about how the bank might have passed along short-term trading tips of its analysts to top clients.

In 2009, Galvin said he was concerned the analysts might pass along their best ideas improperly during weekly meetings called "huddles."

Galvin's office declined to comment on Tuesday, except to confirm the accuracy of Goldman's statements in its filing.

In 2003 Galvin was among a group of regulators who negotiated a $1.4 billion settlement over research practices of big Wall Street firms, including Goldman. Banks were accused of issuing overly optimistic research on companies to win their investment banking business.

A question now is whether Goldman is meeting the terms and spirit of that settlement. As part of the settlement, 10 Wall Street banks agreed to separate their research and banking businesses with a so-called "Chinese wall" to avoid conflicts of interest. Also, research analysts were prohibited from soliciting investment banking business, and their compensation was not to be based on performance of that division.

Goldman also said in its Tuesday filing that Commodity Futures Trading Commission staff had told the bank's execution and clearing unit that they will recommend the CFTC bring charges against the unit. The charges would be linked to Goldman's clearing trades for a broker-dealer.

The CFTC said it does not confirm or deny the existence of investigations.

Last year Goldman paid the SEC $550 million to settle civil fraud charges related to a derivatives deal in 2007. The agency had accused Goldman of misleading clients to earn profits and failing to disclose pertinent information. The bank conducted a comprehensive review of its business practices as a result of that investigation and implemented changes to its reporting processes and interactions with clients.

Goldman spent $700 million on legal costs in 2010 and now has 286 lawyers working full-time, compared with 252 a year ago.

The company said on Tuesday that its worst-case estimate for legal costs had declined to $2.7 billion as of March 31 from $3.4 billion at the end of 2010.

(Reporting by Lauren Tara LaCapra; Additional reporting by Joe Rauch in Charlotte, North Carolina, Christopher Doering in Washington, and Ross Kerber in Boston; Editing by Derek Caney, Steve Orlofsky and John Wallace)

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