Goldman Sachs’ “Trading Huddle” about Nothing

by Jacob Zamansky on August 26th, 2009 at 8:31 am : Comments 000

Although I’m not typically one for conspiracy theories, I must count myself among the growing legion who believe that Goldman Sachs has garnered such an inordinate amount of influence and power that the government and regulators now serve at the firm’s will, rather than the other, rightful way around.  It’s become increasingly difficult to give credence to CEO Lloyd Blankfein’s arguments that Goldman wouldn’t have failed if Washington had decided not to embrace his entreaties to bail out AIG.  If the insurance giant hadn’t been rescued, the cascading effect would inevitably have led to the firm’s demise.  There is good reason that Goldman is known as “Government Sachs.”

So I’m not holding my breath the regulators are going to aggressively investigate the Wall Street Journal’s page one allegations that Goldman’s research analysts routinely hold a weekly “trading huddle” to give “tips” to the firm’s traders and 50 most-favored clients, including SAC Capital Advisors and Citadel Investment Group.  Some of these tips are reportedly at odds with the published recommendations of Goldman’s widely disseminated research reports.

As the attorney responsible for the litigation that ultimately led to the $1.4 billion global Wall Street settlement for conflicted research in 2001, the Journal’s story is obviously of great interest to me.  While it appears as though these huddles may have at least a tinge of insider information, Goldman assures us that’s far from the case.  A spokesman told the Journal that the so-called tips are merely “market color” that is only of interest to clients with “short-term investment horizons.”  Indeed, Goldman is so considerate of its less than favored clients that it doesn’t want to “overload” them with “information that isn’t relevant to them.”

Oh, and here’s one more thing: the traders who attend these weekly meetings can’t trade on the information until it is disseminated to all of Goldman’s clients.

Hmmm….

So if Goldman is to be believed, the firm’s market-moving research people hold a weekly meeting that is attended by Wall Street’s leading institutional investors and Goldman’s own traders so that they can be fed information that is of no material benefit.  Just a bunch of guys and gals with time on their hands gabbing about the market - as Seinfeld might say, it’s a huddle about nothing.  A chance for Goldman’s research folks to bond with clients and the firm’s traders.

Before you take Goldman at its word, ask yourself why firms like SAC Capital and Citadel would be major clients of theirs in the first place.  One might expect that formidable hedge funds wouldn’t want to trade through Goldman for fear of giving the firm insight into their market-moving positions.  Perhaps Goldman’s trading execution is so vastly superior that it is worth taking the risk.  Then again, maybe these firms don’t evaluate Goldman strictly on its trading execution, but rather on the “market color” it can provide.

At the end of the day, it doesn’t matter what you and I believe.  Both FINRA and the SEC are reportedly looking at the Wall Street Journal’s allegations, but something tells me they’ll just deem them a big to do about, well, nothing.

Filed under CEOs, Corporate Governance, FINRA, Wall Street