Goldman Sachs Group Inc. provides some of its biggest clients with stock tips that come from regular meetings held by analysts and traders at the investment bank long before written research reports are released, according to a Wall Street Journal report.
Some of the analysts’ views, which can provide insight on potential short-term market movements, can differ from the research notes Goldman widely distributes to its clients, The Journal reported. Critics say providing the early information to only certain clients hurts customers who aren’t given the opportunity to trade on the ideas that come out of the meetings.
Brokerage firms have the right to share their information with various clients as they wish, so long as their analysts’ stock recommendations distributed publicly don’t contradict what they say internally, said Donald Langevoort, a former Securities and Exchange Commission special counsel who teaches securities law at Georgetown University.
In one case cited in the Journal report, a Goldman analyst said in an April 2008 report that Denver-based mutual- fund manager Janus Capital Group Inc. was a “lackluster neutral.” But days before that report was issued publicly, the same analyst told Goldman’s traders in a meeting that Janus stock was likely to surge.
The traders contacted preferred clients the next day. When the report came out six days later, Janus stock jumped nearly 6 percent.
“My guess is the lawyers (at Goldman) have looked closely at this” and determined it doesn’t violate securities laws or rules, Langevoort said.
The Journal quotes Goldman’s stock-research head, Steven Strongin, as saying no one gains an unfair advantage from the meeting and that the short-term ideas do not contradict the long-term forecasts.
Clashing short-term and long-term opinions is an issue the industry’s self-regulating body, the Financial Industry Regulatory Authority, is reviewing as part of its rules on “fair dealing” with clients.
