Investment banking giant Goldman Sachs has agreed a $15m (£10m) settlement with US regulators over charges that its securities lending practices broke regulations.
The Securities and Exchange Commission (SEC) said broker-dealers such as Goldman Sachs are regularly asked by customers to locate stock for short selling – a process where an asset is borrowed, sold, and then bought back at a later date to make a profit from a price fall.
Granting a "locate" means a firm has borrowed, or believes it could borrow, an asset to use for a short sale. The SEC said Goldman Sachs had improperly provided locates to customers where it had not performed an adequate review of the securities to be settled.
“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.”
The regulator also said the investment bank had "provided incomplete and unclear responses that adversely affected and unnecessarily prolonged the examination".
“SEC exams ensure that market participants are following the rules, so there will be consequences, including in the determination of remedies, when a registrant fails to provide complete and clear responses to examination staff,” said Andrew Calamari, director of the SEC’s New York regional office.