Goldman Sachs settles SEC case

Securities firm agrees to pay $2 million

July 02, 2004|By BLOOMBERG NEWS

NEW YORK - Goldman Sachs Group Inc. agreed yesterday to pay $2 million to settle U.S. regulators' allegations that it improperly tried to spur interest in four Asian share sales, including one in which it told investors to "TAKE A GOOOOOOOD LOOK" at PetroChina Co.

The Securities and Exchange Commission claimed that Goldman, the No. 3 securities firm, sent e-mail to investors with details of PetroChina's $2.9 billion sale before the initial public offering in April 2000 was cleared by the agency. Beijing-based PetroChina is China's biggest oil producer.

"If you're sending out detailed e-mails about planned offerings to some customers, then there are other people out there who don't have that information," said Paul Berger, the SEC lawyer who handled the investigation. "That's not fair."

U.S. securities laws bar underwriters from issuing written communications on a stock sale - other than a preliminary prospectus or a so-called tombstone advertisement - without SEC clearance.

"We're pleased to put this matter behind us," Goldman spokesman Peter Rose said. New York-based Goldman, which neither admitted nor denied wrongdoing, agreed to tougher penalties if it violates securities laws in the future.

A senior Goldman official also spoke to the media before PetroChina's IPO was cleared, saying proceeds of the offering would be used in China and not in Sudan, the SEC said, without identifying the executive. He spoke "after requesting, and receiving, assurances that Goldman's counsel had approved such communications," the SEC said.

Human rights activists had said China National Petroleum Corp., PetroChina's parent, might make investments that could funnel oil revenue to support oppression in the African nation.

The articles cited by the SEC quoted Goldman Sachs International Vice President Robert Hormats, who was a deputy U.S. trade representative under former President Jimmy Carter. Sudan "is not an issue because of the extraordinary steps the company is taking to ensure IPO proceeds are only used domestically," Hormats said in a Jan. 24, 2000, article in Business Week.

Goldman said at the time that it sent the e-mail to 77 hedge fund and institutional clients in the United States by mistake. It then sought to correct the error by publishing the contents of the e-mail in PetroChina's prospectus, describing the company, discussing the pricing of the IPO, and giving reasons to buy the stock, including cost-cutting and potential growth.

"Time to diversify from your tech/telecom-skewered portfolio," the e-mail told investors. "Valuation is at the bottom of global energy comparison range."

Under the heading "SIZE DOES MATTER," the e-mail described PetroChina as the "LARGEST" producer of crude oil and natural gas. The e-mail also included a section called "WHY YOU SHOULD TAKE A GOOOOOOOD LOOK AT PETROCHINA."

Goldman's compliance department, upon learning about the e-mail, told the sales staff not to send it to anyone else. The department reported the incident to the SEC, which found the same employees had also sent e-mail about three other offerings, including China Mobile (Hong Kong) Ltd., Chinadotcom Corp. and Taiwan's Gigamedia Ltd., according to the SEC's administrative order.

Goldman reprimanded the employees involved, and had their bonuses reduced by amounts ranging from $10,000 to $25,000 each, the SEC said.

The SEC also said Goldman provided "confusing and incomplete" guidance to its employees on its Asian stock sales desk on how to comply with IPO registration rules.

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