The Financial Industry Regulatory Authority (FINRA) recently announced that it has fined Goldman Sachs for not properly monitoring trades ranging from 2009 to 2023. The banking giant has agreed to pay around $500,000 in order to settle these claims, but did not admit or deny any of FINRA’s findings.
According to Goldman’s letter of acceptance to FINRA, it was charged with violating FINRA Rule 3110(a) and its predecessor, NASD Rule 3010(a) which requires banks to “establish and maintain a system” for the purpose of ensuring that each of its employees complies with the applicable securities laws and regulations. A violation of these rules is also a violation of FINRA Rule 2010, which requires members “to observe high standards of commercial honor and just and equitable principles of trade in the conduct of their business”.
According to FINRA, Goldman failed to include warrants, rights, units, and certain equity securities in nine surveillance reports designed to identify potentially manipulative proprietary and customer trading. “The firm failed to detect that nine surveillance reports for potentially manipulative trading excluded various securities types,” FINRA said. “By failing to have a reasonably designed supervisory system, Goldman violated NASD Rule 3010 and FINRA Rules 3110 and 2010.”
Goldman’s System Failures
As a result of the gaps in its surveillance reports, Goldman could not perform reasonable monitoring of trading activity for potential manipulation. The nine affected reports would have identified approximately 5,000 alerts for potentially manipulative trading activity in those securities from February 2009 through mid-April 2023. Goldman added the missing securities to the surveillance reports either in response to FINRA’s investigation or through the firm’s adoption of new surveillance reports. By April 2023, Goldman had finished remediating all surveillance reports.
Goldman’s supervisory system, including its written procedures, also did not require a review of its automated surveillance reports to ensure they included all relevant securities traded as part of the firm’s business. Because of this, the bank did not notice that nine surveillance reports, which could have indicated manipulative trading, overlooked warrants, rights, units, and specific equity securities.
Goldman Sachs encountered additional scrutiny from both FINRA and the U.S. Securities and Exchange Commission (SEC) due to lapses in reporting. In September, the firm settled with FINRA and the SEC, agreeing to pay a total of $12 million. The allegations centered on Goldman’s failure to fulfill its recordkeeping and reporting duties, as it provided inaccurate trading data in response to numerous regulatory requests.
The SEC and FINRA asserted that for approximately ten years, Goldman provided regulators with securities trading records containing inaccuracies or omissions related to millions of transactions involving the firm. 
Jacob Horowitz is a contributing editor at Compliance Chief 360°