Goldman Sachs & Co. agreed yesterday to a $2 million fine to settle charges the company illegally and selectively promoted the stock of four Asian companies on the brink of going public.
The Securities and Exchange Commission alleged Goldman, a New York-based securities firm, made illegal offerings of securities to select customers in 1999 and 2000 and made inappropriate statements to the press.
According to the SEC, traders on Goldman's New York Asian shares sales desk sent "lengthy and detailed" e-mails to numerous institutional investors during the waiting period -- before the registration statement was accepted by the SEC -- about four separate initial public offerings for which Goldman served as underwriter. During the waiting period, issuers and their representatives are prohibited from making any written offerings of securities, including e-mails, except by the preliminary prospectus, without SEC clearance.
Additionally, the SEC said that a senior Goldman representative made inappropriate statements to the press -- including The Washington Post -- regarding the firm's role in underwriting PetroChina Co., a Chinese-based oil producer whose parent company invested in Sudan. Although the SEC document didn't name the senior Goldman representative, the articles it referred to quoted Goldman vice chairman Robert D. Hormats. Hormats's statements were made before the company filed a registration statement with the SEC and violated a law that prohibits any actions that may pique interest in a stock before a registration statement is filed.
As is customary in such settlements, the company neither admitted nor denied the SEC's findings. Goldman Sachs spokesman Peter Rose said the company is "pleased to put this matter behind us."
According to the SEC, on Feb. 29, 2000, the day after PetroChina filed its registration statement and during the waiting period, members of the Asian shares sales desk sent e-mails to dozens of institutional customers.
The e-mail included projections of earning growth and net income for the company, including a section titled, "SIZE DOES MATTER," characterizing the company as "the LARGEST producer of crude oil & natural gas" and "one of the Largest companies in China by revenues."
Employees were later instructed to electronically recall the e-mails in addition to alerting e-mail recipients that the e-mail was sent in error.
After investigating the e-mails, the SEC said it found the PetroChina offering was not the first time Goldman employees had improperly promoted stock.
On Oct. 12, 1999, one member of the Asian sales desk sent e-mails to roughly 90 customers urging them to buy stock in China Telecom (Hong Kong) Ltd.
Similar occurrences followed in January and February 2000, with the offering of Chinadotcom Corp. and Gigamedia Limited offerings, when e-mails also were sent. In each case, Asian sales desk managers were sent copies of the e-mails and in some cases sent e-mails themselves.
Additionally, Hormats was quoted in four publications including Business Week, the Asian Wall Street Journal and the Los Angeles Times, in response to inquiries concerning CNPC -- PetroChina's parent company -- and its investment in a Sudan oil project.
Because of human rights abuses, the U.S. government placed sanctions on Sudan, barring U.S. companies from doing business with the country. PetroChina, however, was permitted access to U.S. capital markets.
Hormats's statements, which were designed to allay concerns that money raised in the stock offering might be used in Sudan, were considered an "offer" -- illegal before a company's security registration statement is filed.
Paul Berger, the SEC lawyer handling the case, said that by violating the waiting period Goldman created an unfair advantage. "Registration provisions are designed to level the playing field and make it fair for everyone," Berger said. "And in a number of instances they didn't adhere."
According to the SEC, Goldman provided "confusing and incomplete" guidance to employees on complying with the rules. Members of the Asian sales desk allegedly were told they could communicate with their customers even during the waiting period.
Goldman reprimanded the employees involved both orally and in writing, including a disciplinary memoranda to the desk members. The employees' discretionary bonuses were reduced by $10,000 to $25,000 each. A source close to Goldman Sachs who spoke only on the condition that they not be named said the employees are still with the company.
Goldman has since adopted mandatory regulation compliance training, including the use of e-mail in registered offerings.