The Goldman Sachs Group was fined $2 million by market regulators yesterday for allowing clients to make illegal short sales before stock offerings.
Goldman did not follow procedures that might have uncovered a pattern of illegal trades from 2000 to 2002, the Securities and Exchange Commission and the New York Stock Exchange said in statements.
If there are signs clients are lying, “the broker must investigate the customer’s trading,” David Nelson, an S.E.C. regional director overseeing the case, said in a statement.
Regulators are increasingly holding prime brokers accountable if they do not act on signs that hedge funds and other clients are conducting illegal trades. Susan L. Merrill, the exchange’s enforcement chief, warned in November that agencies would take action if brokers did not prevent abuses like making improper short sales before public offerings.
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