Perhaps Goldman Sachs needs to hire compliance staff to monitor its compliance staff.
That's the takeaway after reading insider trading charges the Securities and Exchange Commission has leveled against a former associate in Goldman's compliance division, who monitored activity in the firm's vaunted investment banking unit. Instead of using their seat at Goldman to defend against potential illegal activity amid today's steady clip of merger deals, the associate is accused of using it to commit crimes.
On Wednesday, the SEC charged Yue Han, an associate in Goldman's Surveillance Analytics unit, a piece of its wider compliance department, with misappropriating information on the pending takeovers of Zulily,
Han, who also goes by John Han and left Goldman in early October, is accused by the SEC of using his compliance access to read bankers' emails on the pending deals and using that material non-public information to make $450,000 in illicit profits. The SEC has frozen the trading accounts of Han and a relative who also made trades that benefited from inside info. However, Han appears to have left Goldman shortly after a year of putting on his trades. And weeks after resigning from Goldman, he appears to have fled the country for China.
Nowhere in the SEC's complaint is there indication Goldman spotted Han's allegedly illegal activity. Han may have evaded Goldman's standard employee surveillance by not to registering the brokerage he accounts he then used to make the insider trades.
"If the allegations are true, Han violated our trust and ignored extensive training that he received so we are pleased that the authorities are pursuing action against him," said Michael DuVally, a Goldman Sachs spokesperson.
The SEC's charge comes just weeks after Goldman paid a $50 million fine and admitted it failed to supervise an investment banking employee who used contacts at his former employer, the Federal Reserve Bank of New York, to get confidential regulatory information about his clients and use it to advise them. When Goldman realized the employee gained the regulatory information illegally it alerted authorities and he was fired. The employee, Rohit Bansal, has since pleaded guilty to criminal charges.
Although the alleged criminal activity inside of Goldman is anecdotal, it should be concerning for the firm.
For years, Goldman has been the de facto investment bank to call for advice on capital raisings and merger and acquisition activity. However, if clients begin to believe their private information is being misappropriated, they may look elsewhere.
Worse yet, Goldman has long prided itself as having a culture that champions its clients and stands apart from the competition on Wall Street. But using clients as a means to make illegal profits is perhaps the biggest betrayal. And at a bank that's privy to much of the activity in today's marketplace, its compliance has to be bulletproof. When those employees are instead engaging in illegal activity, questions have to be raised.
Much of a recent spate in insider trading cases against investment bankers -- Evercore for instance -- involve newer employees who may not be steeped in a firm's culture, or are not as wedded to the profession. Perhaps, the flurry of charges in recent years indicates an erosion of culture inside Wall Street's biggest investment banks amid competition from the buy side and a continued post crisis retrenchment that's leading to shrinking bonuses.
