FINRA Fines Goldman Sachs for Decade-Long Oversight Failures

The Financial Industry Regulatory Authority, or FINRA, penalized Goldman Sachs & Co. LLC significantly for failing to follow regulatory criteria for over a decade.

Goldman Sachs removed warrants, rights, units, and several OTC equity securities from their nine surveillance reports from February 2009 to late April 2023. These reports are crucial for monitoring and identifying odd trading actions that may suggest market manipulation, whether by the firm's traders or clients.

For example, one monitoring report charged with identifying possible wash trades—a kind of market manipulation in which securities are purchased and sold to mislead the market about trading volume—failed to account for warrants between October 2010 and March 2021. Similarly, rights and units were excluded from this examination from October 2010 to April 2022. Furthermore, from the commencement of these reports in February 2009 until April 2018, Goldman's attempts to identify possible manipulative activities at the opening and close of trading sessions failed to take into account warrants, rights, units, and some OTC equity securities.

The impact of these oversight holes in Goldman's surveillance reports was severe. The company was unable to perform full supervisory assessments of trading actions involving the deleted equities, thus missing over 5,000 warnings that might have revealed manipulative trading practices between February 2009 and mid-April 2023.

Goldman Sachs began to include previously excluded stocks in its surveillance reports only after the FINRA inquiry began or as part of the firm's implementation of a new surveillance methodology. By April 2023, Goldman Sachs had completely corrected the surveillance reporting issues.

Furthermore, Goldman Sachs' supervisory system, including its written procedures, was found to be weak in meeting its duty to evaluate automated surveillance reports regularly to ensure complete coverage of all assets traded by the company. This error resulted in the business being unaware that nine of their surveillance reports had omitted crucial equities from a possibly manipulative trading investigation. In response to this revelation, Goldman Sachs launched a review process in February 2021 to identify any securities that were accidentally missing from newly generated or amended surveillance reports.

Goldman Sachs violated NASD Rules 3010, FINRA Rules 3110, and 2010 by failing to maintain an effective supervisory structure to ensure compliance with trading requirements. To resolve these regulatory violations, Goldman Sachs agreed to accept a formal reprimand and a $512,500 punishment. FINRA will receive $37,000 of this fine, with the remainder divided among various trading platforms and exchanges, including Cboe BYX Exchange, Inc., Cboe BZX Exchange, Inc., and Cboe.

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