By Sarah N. Lynch and Aruna Viswanatha
WASHINGTON (Reuters) - Goldman Sachs
The U.S. Securities and Exchange Commission and the Financial Industry Regulatory Authority said the charges stemmed from Goldman's weekly "huddles," at which the bank encouraged its stock research analysts to "provide their best trading ideas to firm traders."
Those traders then passed tips to a select group of top clients, the SEC said, but the agency's charges did not include allegations of insider trading.
The SEC said that Goldman policy, for example, required broad distribution of market-sensitive statements from analysts about the companies they covered.
But the policy did not apply to certain internal messages commenting on "short-term trading issues or market color," and Goldman failed to define what those exceptions included, regulators said.
"Higher-risk trading and business strategies require higher-order controls," said Robert Khuzami, the SEC's enforcement director.
Khuzami said that "Goldman failed to implement policies and procedures that adequately controlled the risk that research analysts could preview upcoming ratings changes with select traders and clients."
Goldman agreed to pay the penalty, split between the two regulators, and revise its policies to correct the problem.
A spokesman for the bank, Michael DuVally, said Goldman was pleased to resolve the matter.
The regulators said the weekly huddles took place from 2006 to 2011 and that analysts would discuss "high-conviction" short-term trading ideas and other "market color" with traders.
Then in 2007, Goldman launched a program that allowed research analysts to call a select group of priority clients.
According to the settlement with FINRA, Goldman at times failed to properly monitor the conversations that took place in the huddles to determine whether any previews of upcoming research changes were discussed.
In late 2008, for instance, FINRA said one analyst had received approval to add a company to a Goldman list of best investment ideas.
The next day in a huddle, the analyst told the others that the company remained a "favorite idea."
The following day, FINRA said, Goldman published a report adding the stock to its "conviction buy list."
Goldman settled a parallel civil case over the huddles with Massachusetts securities regulators in 2011 in which the bank paid a $10 million fine and admitted to certain factual findings, an unusual occurrence for civil settlements.
In the SEC and FINRA statements on the settlement, the bank admitted to the same facts it admitted in the Massachusetts case.
In 2003 Goldman and a group of big Wall Street firms reached a $1.4 billion settlement over allegations that they issued overly optimistic research on companies to win their investment banking business.
As part of that settlement, 10 banks agreed to separate their research and banking businesses with a so-called "Chinese wall" to avoid conflicts of interest.
In 2003 Goldman also paid some $9 million in sanctions to settle a separate SEC case involving allegations that it failed to maintain policies that prevented the firm from misusing material, non-public information obtained from outside consultants about U.S. Treasury 30-year bonds.
The SEC said Thursday's settlement included violations of the same law that was at issue in the 2003 Treasury bond settlement.
The SEC said it considers "a variety of factors, including prior enforcement actions," to determine what sanction to impose.
(Editing by Gerald E. McCormick, Andre Grenon, Steve Orlofsky and Carol Bishopric)