Goldman agrees to pay $10m to Mass.

‘Huddles’ gave larger investors an unfair advantage, state says

By Taryn Luna
Globe Correspondent / June 10, 2011

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Massachusetts’ top securities regulator fined Goldman Sachs & Co. $10 million to settle allegations that the Wall Street broker systematically favored certain clients over others.

Yesterday’s settlement is the result of a two-year investigation into Goldman’s practice of “huddles,’’ or internal meetings in which the company’s traders and securities analysts discussed investments and market trends, and then allegedly shared insights from these meetings with hedge funds and other large clients.

A 26-page consent order between Goldman and the Massachusetts Securities Division describes the broker’s actions as “dishonest and unethical violations’’ of state securities laws, putting certain clients at an advantage over others. In addition to the fine, Goldman agreed to stop conducting huddles.

“In the securities industry we’re seeing all the time that information is not only power, its money,’’ said Secretary of State William F. Galvin, whose office regulates securities. “Fairness to all customers is important if we’re going to have a marketplace that people can be comfortable in.’’

Stephen Cohen, a spokesman for Goldman, said the bank was pleased to have resolved the matter. Goldman neither admitted or denied wrongdoing.

The consent order describes e-mails, memos, and other internal documents dating back to January 2006 that were subpoenaed by the state earlier this year.

According to the order, Goldman established an “Asymmetric Service Initiative,’’ which categorized clients into four tiers, with only the first and second tiers receiving calls from analysts to share insights presented at the huddles.

The tiers were based on the size of the clients’ revenues, among other criteria.

An asset manager and mutual fund from Massachusetts made the top tier, while some pension funds and smaller mutual funds in the state landed in the third tier, according to the order.

The state alleged that Goldman was directing researchers to seek information that would be directly relevant to top-tier clients.

“It’s an effort to use research information as a marketing tool to increase the bank’s business,’’ Galvin said. “We think the probable beneficiaries of this were hedge funds.’’

One Goldman e-mail sent to employees in August 2007 revealed that a group of clients that received information from huddles resulted in “about a 50 percent rise in revenue’’ to Goldman from those clients.

Beth Healy of the Globe staff contributed to this report.