The Securities and Exchange Commission today announced that Goldman, Sachs & Co. has agreed to pay $15 million to settle charges that its securities lending practices violated federal regulations.
According to the SEC’s order instituting a settled administrative proceeding, broker-dealers such as 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 J. 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.”