On Thursday, Massachusetts regulators fined Goldman Sachs (NYSE:GS) $10 million for providing short-term stock tips to its biggest clients at the expense of other customers. Stock research costs millions to produce and is typically viewed as a money loser. Nevertheless, in 2006 Goldman leveraged its equity research to benefit premier clients.
The tips emerged from meetings referred to as trading huddles. During these gatherings of stock analysts and traders, the former identified stocks that they felt were likely to rise or fall in the short-term. The intel was then passed along to Goldman’s (NYSE:GS) biggest clients. The issue is that much of the information conveyed in these meetings contradicted the ratings printed in Goldman’s widely circulated long-term reports. However, Goldman has maintained that these calls did not disclose anything aside from what was included in their published research.
As part of the $10 million settlement reached with Massachusetts regulators, Goldman (NYSE:GS) agreed to cease trading huddles. This measure will cost Goldman far more than the $10 million fine, as the revenue from those clients receiving premium information had been considerable. Furthermore, the huddles served to partially fill a void created in 2003 when 10 Wall Street firms, including Goldman, were forced to pay a total $1.4 billion. This substantial fee was part of a settlement to resolve accusations that the implicated firms had been luring investment-banking business with overly optimistic stock research. Time will tell whether Goldman devises yet another subversive measure to compensate for lost revenues.