Goldman Admits To Frontrunning Clients Through Its Prop Desk
The topic of Goldman frontrunning clients using its prop desk, which has long bothered Zero Hedge, and which in the past received Goldman's vehement refutation, seems to have resurfaced, and to have proven our initial speculations correct. Jane Lattin, assistant to Thomas Mazarakis, head of fundamental strategies, sent out an email to clients earlier, notifying them that the firm in the past has traded ahead of them in its Fundamental Strategies Group, aka its Prop Trading desk, which is, by definition, frontrunning: "The Fundamental Strategies Group is a group of cross-capital structure
desk analysts employed by our Securities Divisions to assist our
traders. They develop Trading Ideas in conjunction with traders. We may trade, and may have existing positions, based on Trading Ideas before we have discussed those Trading Ideas with you. We
may continue to act on Trading Ideas, and may trade out of any
position, based on Trading Ideas, at any time after we have discussed
them with you. We will also discuss Trading Ideas with other clients, both before and after we have discussed them with you." This answers our repeated queries from July as to whether Goldman is legally front-running its clients for its own prop positions.
Full Goldman letter:
We may from time to time discuss with you Trading Ideas generated by our Fundamental Strategies Group. As part of our commitment to managing conflicts of interest appropriately, this message is to explain how the Fundamental Strategies Group interacts with other parts of our organisation and how that impacts on the Trading Ideas.
The Fundamental Strategies Group is a group of cross-capital structure desk analysts employed by our Securities Divisions to assist our traders. They develop Trading Ideas in conjunction with traders. We may trade, and may have existing positions, based on Trading Ideas before we have discussed those Trading Ideas with you. We may continue to act on Trading Ideas, and may trade out of any position, based on Trading Ideas, at any time after we have discussed them with you. We will also discuss Trading Ideas with other clients, both before and after we have discussed them with you.
You should not consider Trading Ideas as objective or independent research or as investment advice. When we discuss Trading Ideas with you, we will not be acting as your advisor (including, without limitation, in relation to investment, accounting, tax or legal matters) and the provision of Trading Ideas to you will not give rise to any fiduciary or equitable duties on our part. We will not be soliciting any action based on Trading Ideas and it is your responsibility to seek appropriate advice.
Any opinions that we express when we discuss Trading Ideas with you will be our present opinions only and we will not have any obligation to update you in the event of a change of circumstances or a change of our opinions. We prepare Trading Ideas based upon information that we believe to be reliable but we make no representation or warranty that such information is accurate, complete or up to date and accept no liability, other than for fraudulent misrepresentation, if it is not.
If you have any concerns about any of these matters, please do not hesitate to contact us.
Assistant to Thomas Mazarakis – Head of Fundamental Strategies
For those who may not recall, Zero Hedge queried the following on July 1, 2009:
Everyone who is anyone on Wall Street has at some point used the Goldman 360 portal whether for research, news, keeping a track of prime brokerage portfolio or, disturbingly, for trading, via the REDI Plus 9.0
platform (now loaded with enhanced algo trading features to make life
for you, dear soon to be frontran Goldman client, so much easier). A
second widely accepted Wall Street concept is that a disclaimer is the
last thing that anyone reads, if ever. Yet after taking a close look at
the Goldman disclaimer for the 360 portal, which is an umbrella waiver or all downstream websites, including REDI, one discovers the following gem:
Monitoring by GS: Your use of the products and services on this Web site may be monitored by GS, and that the resultant information may be used by GS for its internal business purposes or in accordance with the rules of any applicable
regulatory or self-regulatory organization.
One second: by
using Goldman 360 a client voluntarily allows Goldman to provide
keystroke by keystroke data of everything the client does, even if that
includes launching trades via REDI, to Goldman for the internal
business purposes. The third thing everyone on Wall Street agrees on is
that "internal business purposes" usually (and in Goldman's case,
almost exclusively) means proprietary trading.
Are Goldman 360
clients (in)voluntarily signing off a release to be front ran by
Goldman on any portal-based trade? Could Goldman please clarify just
what "internal business purposes" means in the context of this
overarching disclaimer, and also whether Goldman has ever actually used
360 submitted information in the decision making process of its prop
trading desk? Lucas Van Pragg: the floor is yours.
several readers have presented some other Goldman Sachs and Spear,
Leeds and Kellogg form documents that contain an even more crypitc
warning in section 4(f) in Use Of Services:
You acknowledge that we may monitor your use of the Services for our own purposes (and not for your benefit).
We may use the resulting information for internal business purposes or
in accordance with the rules of any applicable regulatory or
self-regulatory body and in compliance with applicable law and
NOT FOR YOUR BENEFIT? I mean, come on, how more clearer does it need to get.
The post promptly solicited the following response from Goldman Sachs:
Dear Mr Durbin [sic]:
This is in response to your recent blog about
our web site disclaimer. It is quite usual for websites to have
disclaimers that refer to the monitoring of site usage. Most web sites,
including yours we noticed, track usage by their visitors. This is
primarily used for marketing and to help inform decision about
Your suggestion that we monitor our web site to facilitate front-running is untrue and offensive.
Goldman, Sachs & Co.
This was followed by Marla's counterresponse:
Dear Mr. Canady:
Thanks for your quick reply.
future reference, the correct spelling for "Tyler" is "Tyler Durden."
(A re-viewing of "Fight Club" might be in order, but I know Goldman VPs
probably rarely have time for such luxuries).
Obviously, we want
to make sure we have our facts correct so I am pleased to see your
email. Perhaps you can lay to rest some questions we have for the
1. Indeed, data use disclaimers are a common feature on
most websites. Still, I think you will agree that where usage patterns
are so directly linked with potential investment activity and customer
intentions it is a bit unusual not to have a more explicit description
of the kind of use Goldman intends here. This is particularly so where
customer attitudes are concerned, and appearances are important.
"Internal business purposes" is a bit vague in this respect, don't you
find? This seems unlike Goldman, usually a firm known for very careful
attention to detail. Why is a more specific description of such
purposes not included? I would think that easier than explaining the
matter repeatedly to random bloggers (and customers).
notice that you have not taken the opportunity to address similar
disclaimer language in the form contracts used by Goldman and Spear,
Leeds and Kellogg. Was this omission intentional or an oversight? (For
your reference you can find the language we are curious about here:
http://www.zerohedge.com/node/12083). "You acknowledge that we may
monitor your use of the Services for our own purposes (and not for your
benefit). We may use the resulting information for internal business
purposes or in accordance with the rules of any applicable regulatory
or self-regulatory body and in compliance with applicable law and
Not to be a stickler, but the drafting here seems quite careless.
the differing terms between the website disclaimer "...the resultant
information may be used by GS for its internal business purposes OR in
accordance with the rules of any applicable regulatory or
self-regulatory organization...." (emphasis added) and the form
disclaimer "...we may use the resulting information for internal
business purposes or in accordance with the rules of any applicable
regulatory or self-regulatory body AND in compliance with applicable
law and regulation...." (emphasis added).
As a reformed legal
professional myself, this seems a bit sloppy to me. Can you comment on
the language and in particular why a more explicit definition of
"internal business purposes" is not included?
3. I also notice that you do not specifically address our question:
Goldman has ever actually used 360 submitted information in the
decision making process of its prop trading desk?" Could you give us a
response there? Perhaps you might augment that to include the decision
making process of any Goldman investment decisions rather than just the
prop desk and all information Goldman collects about 360 users.
lastly, while we have your attention, we were hoping you could make a
statement for Zero Hedge and its readers on the long discussed topic on
our pages regarding Goldman Sachs' effective monopolization of
Principal Program Trading in the New York Stock Exchange. In other
venues you have attributed this domination solely to Goldman's
selection as the one and only SLP currently used by the NYSE. Would you
care to elaborate how that fits in with the NYSE's upcoming changes to
their DPTR (http://www.zerohedge.com/node/11769)
pertaining to J and K account type indicators. Was Goldman in any way
consulted in the making of this decision by the NYSE? Did Goldman have
any direct communication with the SEC on this issue?
your help with these matters. As an aside, if there is a contact at
Goldman we can routinely direct these questions to that might be
helpful for both of us going forward. I look forward to hearing from
We now consider this topic closed.
h/t Beached Whale Account