Report: Goldman providing tips to certain clients

NEW YORK — Goldman Sachs Group Inc. provides some of its biggest clients stock tips that come out of regular meetings held by analysts and traders at the investment bank, according to a Wall Street Journal report.



Some of the analysts’ views, which can provide insight on potential short-term market movements, can differ from research notes Goldman widely distributes to its clients, the Journal reported. Critics claim providing the early information to only certain clients hurts customers who aren’t given the opportunity to trade on the ideas that come out of the meetings.

Brokerage firms have the right to share their information with various clients as they wish, so long as their analysts’ stock recommendations distributed publicly don’t contradict what they say internally, said Donald Langevoort, a former Securities and Exchange Commission special counsel who teaches securities law at Georgetown University.

Goldman’s compliance officers sit in on the meetings, according to the report.

“My guess is the lawyers (at Goldman) have looked closely at this” and determined it doesn’t violate securities laws or rules, Langevoort said. “Nobody on this phone call wants to get into an insider-trading situation.”

“As a general matter, (brokerage firms) have obligations to use research information properly, disclose conflicts of interests by research analysts, and ensure their publicly available research is consistent with privately expressed views,” SEC spokesman John Nester said Monday. He declined to comment specifically on the Goldman situation.

The Journal quotes Goldman’s stock research head, Steven Strongin, as saying no one gains an unfair advantage from the meeting and that the short-term ideas do not contradict the long-term forecasts in written research notes.

Clashing short-term and long-term opinions from the same firm is an issue the securities industry’s self-regulating body, the Financial Industry Regulatory Authority, is currently reviewing as part of its rule requiring “fair dealing” with clients.

A Finra spokesman said the group is currently reviewing comments about a proposed rule that would clarify disclosure obligations allowing firms more flexibility in how they provide views on a stock.

“It’s more of a gray area than a black-and-white area,” said John Coffee, a professor of securities law at Columbia University.

The “fair dealing” rule for investment firms “hasn’t really been applied very strictly,” Coffee said. To make a case that the meetings violated rules, regulators would have to show that a firm “systematically” ensured that certain clients received the information before others, he said.

The tips at Goldman come out of meetings, called “trading huddles,” the Journal report said. However, very few of Goldman’s thousands of clients who get written research from the bank receive recommendations from the huddles, according to the Journal.

The Journal said, citing participants of the huddles, that the meetings can last up to about an hour. At the meetings, analysts bring trading ideas and Goldman’s traders talk about financial markets and what could trigger movements in specific stocks.

Employees then call and provide the information to top clients, while in-house traders cannot use the tips until after they’ve been given to customers, the report said.

Recommendations from the meetings usually remain in effect for a week, according to the Journal.

A Goldman spokesman didn’t return messages seeking comment.

Gordon reported from Washington.