The Financial Industry Regulatory Authority (FINRA) has fined Goldman Sachs & Co. LLC for alleged rule violations.
Between February 2009 and mid-April 2023, Goldman failed to include warrants, rights, units, and certain OTC equity securities in nine surveillance reports designed to identify potentially manipulative proprietary and customer trading. 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 identify potential wash trades excluded warrants from October 2010 through March 2021 and excluded rights and units from October 2010 through April 2022. Additionally, Goldman’s surveillance reports designed to identify potential marking the open and marking the close excluded warrants, rights, units, and certain OTC equity securities from the inception of the reports in February 2009 until April 2018.
As a result of the gaps in its surveillance reports, Goldman could not perform reasonable supervisory reviews of trading activity in warrants, rights, units, and certain OTC equity securities for potential manipulation. The nine affected reports would have identified approximately 5,000 alerts (based on extrapolations from available data) for potentially manipulative trading activity in those securities from February 2009 through 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 a review of its automated surveillance reports to ensure they included all relevant securities traded as part of the firm’s business. As a result, the firm failed to detect that nine surveillance reports for potentially manipulative trading excluded warrants, rights, units, and certain OTC equity securities. In February 2021, Goldman implemented reviews to identify if any security has been inadvertently excluded from new or modified surveillance reports.
By failing to have a reasonably designed supervisory system, Goldman violated NASD Rule 3010 and FINRA Rules 3110 and 2010.
Goldman has consented to the imposition of a censure and a $512,500 fine, of which $37,000 shall be paid to FINRA.The remainder 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.