Goldman, Sachs & Co. agreed Thursday to pay $15 million to settle Securities and Exchange Commission charges that its securities lending practices violated Regulation SHO.
According to the SEC’s order instituting a settled administrative proceeding, broker-dealers like Goldman Sachs are regularly asked by customers to locate stock for short selling. Granting a “locate” represents that a firm has borrowed, arranged to borrow, or reasonably believes it could borrow the security to settle the short sale.
The SEC finds that Goldman Sachs violated Regulation SHO by improperly providing locates to customers where it had not performed an adequate review of the securities to be located. Such locates were inaccurately recorded in the firm’s locate log that must reflect the basis upon which Goldman Sachs has given out locates.
“The requirement that firms locate securities before effecting short sales is an important safeguard against illegal short selling,” said Andrew Ceresney, director of the SEC’s Enforcement Division. “Goldman Sachs failed to meet its obligations by allowing customers to engage in short selling without determining whether the securities could reasonably be borrowed at settlement.”
When SEC examiners questioned the firm’s securities lending practices during an exam in 2013, Goldman Sachs provided “incomplete and unclear responses that adversely affected and unnecessarily prolonged the examination,” according to the SEC.
Andrew Calamari, director of the SEC’s New York Regional Office, added that SEC exams “ensure that market participants are following the rules, so there will be consequences, including in the determination of remedies, when a registrant fails to provide complete and clear responses to examination staff.”