WASHINGTON — Goldman Sachs has agreed to pay $450,000 to settle regulators' allegations that it violated a rule related to short-selling of stocks in 2008-2009, it was announced Tuesday.
The banking company did not admit or deny wrongdoing in paying the civil penalties in agreements with the Securities and Exchange Commission and the New York Stock Exchange's regulatory arm.
The case involving Goldman's stock-trading business is unrelated to the SEC's civil fraud charges filed against the firm last month over mortgage securities transactions it arranged. Goldman has denied the allegations in that case and said it will contest the charges in court.
The rule in the short-selling case involves naked short-selling and was installed by the SEC at the height of the market distress in the fall of 2008.
Short sellers often borrow a company's shares in a short sale, hoping to make a profit when the shares decline. Naked short-selling occurs when sellers don't own or borrow the shares before selling them.
The SEC also censured the brokerage subsidiary based in Jersey City, N.J., Goldman Sachs Execution & Clearing LP, in its administrative proceeding in the case. Censure generally brings the possibility that the firm could face a stiffer sanction if the alleged infraction is repeated.
While Goldman neither admitted nor denied the allegations, it did agree to refrain from future violations of the short-selling rule.
The SEC put in the rule as a temporary emergency measure at the height of market turmoil in October 2008 as the financial crisis struck with full force. The rule expired in July 2009 but the agency made it permanent that month.
Under the rule, brokers acting for short sellers must find a party believed to be able to deliver the shares within three days after the short-sale trade. If the shares aren't delivered within that time, there is deemed to be a "failure to deliver." Brokers can be subject to penalties if the failure to deliver isn't resolved by the start of trading on the following day.
In its order, the SEC said Goldman Sachs Execution & Clearing violated the rule "by failing to deliver certain securities or immediately purchase or borrow securities, to close out the fail-to-deliver position ... on the required date."
The agency said it took into account, in accepting Goldman's settlement offer, the firm's prompt actions to remedy the problem and its cooperation with the SEC staff.
NYSE Regulation said a hearing officer had found that from early December 2008 to mid-January 2009, Goldman Sachs Execution & Clearing failed on "approximately" 68 occasions to close out in time fail-to-deliver positions in stocks. The firm also "failed to reasonably supervise and implement adequate controls" to ensure compliance with the short-selling rule, NYSE Regulation said.
Some financial industry officials have maintained that the SEC's rule brought unintended negative consequences, such as wilder price swings and turbulence in the market.
In recent months, the agency has been considering several new approaches to reining in rushes of regular short-selling, which can cause dramatic plunges in stock prices.
Investors and lawmakers have been clamoring for the SEC to put new curbs on trading moves they say worsened the market's downturn starting in the fall of 2008.
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