1 July 2004 – LAWFUEL – The Securities and Exchange Commission today announced the institution of settled administrative proceedings against Goldman, Sachs & Co. (“Goldman”) for violating the federal securities laws in connection with certain public offerings during 1999 and 2000 by making illegal offers of securities by email to certain of its institutional customers, for failing reasonably to supervise its employees and, in connection with one public offering, making inappropriate statements to the press. Goldman simultaneously consented, without admitting or denying the Commission’s findings, to the issuance of a Commission order (“Order”) finding that Goldman violated Sections 5(b) and (c) of the Securities Act of 1933 (“Securities Act”). The Order also directs Goldman to cease and desist from committing or causing any violations, and any future violations, of these provisions of Section 5 and imposes a civil penalty of $2,000,000.
According to the Order, Goldman violated Section 5(b) of the Securities Act in connection with four international public offerings for which the firm served as underwriter when certain salespersons on Goldman’s New York Asian Shares Sales Desk (the “Desk”) sent lengthy and detailed emails concerning the offerings to numerous institutional customers during the “waiting period,” the period after a registration statement is filed, but before the Commission declares it to be effective. Section 5(b) of the Securities Act prohibits the making of written offers of securities (including by email) during the waiting period other than by means of a statutory prospectus. The Order finds that the emails described above did not contain the information required by the Securities Act for statutory prospectuses, and therefore violated Section 5(b).
The Order also finds that in connection with one of these four offerings, a global, multi-billion dollar initial public offering by PetroChina Company Limited (“PetroChina”), Goldman violated Section 5(c) of the Securities Act when, during the “pre-filing period,” the period before the registration statement was filed, a senior Goldman representative spoke to the press about PetroChina, and explained that the proceeds of the offering would be used in China, and not in Sudan. Under Section 5(c) of the Securities Act, during the pre-filing period, issuers and their representatives, such as Goldman, are prohibited from engaging in activities that could reasonably have the effect of arousing investors’ interest in the issuer’s securities. The Order finds that Goldman violated Section 5(c) of the Securities Act when, under the circumstances of this case, the senior Goldman representative spoke to the press on Goldman’s behalf.
Also, according to the Order, Goldman lacked an adequate system for applying the firm’s procedures relating to compliance with Section 5 of the Securities Act to the Desk. The guidance and training provided to the Desk by Goldman was confusing and incomplete, which caused the members of the Desk to lack a clear understanding of their obligations under Section 5 of the Securities Act. Because the members of the Desk violated Section 5(b) of the Securities Act, and Goldman failed to have or to follow procedures reasonably designed to detect or prevent such violations, the Order finds that Goldman failed reasonably to supervise its employees for purposes of Section 15(b)(4)(E) of the Securities Exchange Act of 1934.
See In the Matter of Goldman, Sachs & Co., Administrative Proceeding File No. 3-11533 (July 1, 2004).
