Journos Doing The Work Of Regulators Again In Goldman Sachs “Huddles” Case

Sometimes you wonder if financial regulators can only spot wrong-doing when it gets chucked onto their desk in a folder marked “WRONG-DOING”. First there was Harry Markopolos waving his hands and pointing at the Madoff case for years before anyone caught on, and then there was Alex Dalmady, a journalist damning Allen Stanford’s operation, whose writing eventually caught the eye of regulators and set the wheels in motion. Now its taken a front-page splash in the Wall Street Journal for regulators to realise that maybe Goldman’s trading practices could be a bit wonky.

On Monday, the WSJ published “Goldman’s Trading Tips Reward Its Biggest Clients”, written by Susanna Craig. In it, it describes the rather unfair-seeming way that Goldman holds onto its big clients, essentially by disadvantaging the smaller ones to give the bigger ones exclusive information. Their research analysts, who look at all kinds of trading, manufacturing and financial trends, give short-term tips to Goldman traders during a “huddle”, who pass on the tips to big investors, who reap the rewards. These tips then don’t get included in the long-term research provided for other, less favoured clients, and in fact often differ wildly with the published research. It’s more grist for the mill that Goldman is just a big mutual backscratching club, who help out other elite members and end up in places like the head of the Treasury.

Three days on and the news has clearly rattled the regulators, who are falling over themselves trying to do something about it. Finra were poking around it before but now are stepping up their investigations, the SEC are involved, and William Galvin, “Massachusetts’s chief financial regulator”, has subpoenaed Goldman, saying: “We have concerns about the research analysts and the efforts under way to use them to secure additional business”. Craig allows herself the faintest hint of self-congratulation in her piece about the litigation she’s unleashed: “The huddles, which were the subject of a page-one article on Monday in The Wall Street Journal…” Her modesty belies what is a really top-notch piece of journalism, which looks like it’s going to democratise the investment process that little bit more.

Galvin added to his remarks: “Even the term ‘huddles’ sounds suspicious”. To these ears it’s merely more proof that Goldman is an Ivy League football dressing room transplanted onto a trading floor. I bet they do that all-fists-in-the-middle-then-throwing-them-up-in-the-air move, accompanied by “HUH” noise, when they finish a meeting, leaving a trace of unreconciled homoeroticism lingering in the air.

Posted by Ben Beaumont-Thomas in Hot Money | August 27, 2009 11:00AM |