Goldman Subpoenaed on Huddles

provided by

Massachusetts Official Worries Tips Leave Some Clients at a Disadvantage

William Galvin, Massachusetts's chief financial regulator, has subpoenaed Wall Street firm Goldman Sachs Group Inc., demanding information on the firm's weekly trading huddles between its research analysts and traders.

Mr. Galvin, the Massachusetts secretary of the commonwealth, said he is concerned that the huddles, in which Goldman's research staff give verbal short-term stock tips to the firm's traders and then its clients, disadvantage some Goldman customers.

"We have concerns about the research analysts and the efforts under way to use them to secure additional business," Mr. Galvin said on Wednesday.

The huddles, which were the subject of a page-one article on Monday in The Wall Street Journal, also are being examined by both the Financial Industry Regulatory Authority -- the industry self-regulatory body known as Finra -- and the Securities and Exchange Commission, according to people familiar with the matter.

Internal documents reviewed by the Journal show that at times, these short-term trading tips differed from Goldman's long-term research. Critics complain that Goldman's distribution of the trading ideas to its traders and major clients hurts other Goldman customers who aren't given the opportunity to trade on the information and may be relying on the firm's longer-term research to make investment decisions.

The huddles, and what is discussed during or after them, currently aren't disclosed in Goldman's long-term research. On Monday, the firm internally discussed adding information about the service on its client Web site.

Some firms also give stock ideas to clients but disclose the service in their longer-term research and on their Web sites.

Mr. Galvin's subpoena, also reviewed by the Journal, asks for a host of internal Goldman documents related to the huddles.

A Goldman spokesman declined to comment. In the Monday Journal article, a Goldman spokesman said ideas that arise from the huddles are simply "market color" and "always consistent with the fundamental analysis" in published research reports.

In 2003, Mr. Galvin was one of several regulators involved in negotiating a $1.4 billion settlement with 10 big Wall Street firms, including Goldman. The firms were accused of issuing overly optimistic research in a bid to win more lucrative investment-banking business.

Mr. Galvin on Wednesday said he is concerned that now the trading arms on Wall Street are putting undue influence on research analysts to win business. "Even the term 'huddles' sounds suspicious," he said. He said his investigation may expand to look at practices at other firms.

Write to Susanne Craig at susanne.craig@wsj.com