Ex-Goldman Sachs trader is charged by SEC

By Kara Scannell in New York

A former Goldman Sachs trader and his father have been charged by securities regulators with insider trading for allegedly profiting after learning confidential information about the bank?s trading strategy around an exchange traded fund.

The US Securities and Exchange Commission, in a civil action, alleged the former Goldman trader, Spencer Mindlin, tipped off his father, Alfred Mindlin, an accountant, about Goldman?s hedging trades pegged to an ETF, which mirrors a basket of securities. By trading ahead of Goldman?s actions in late 2007 and early 2008, the SEC alleges, the father-son duo made $57,000 (?37,000) in illicit profits.

Robert Knuts, a lawyer for the two men, denied that inside information was used to make trades.

?This is a situation where a son working in the securities industry suggested a trading strategy to his father and helped the father understand and execute the strategy.

?It is based on the well-known rebalancing phenomenon within the ETF industry and publicly available information,? Mr Knuts said.

A spokeswoman for Goldman said the bank had co-operated fully with the probe. Mr Mindlin, 33, left the company in August 2009.

The SEC said it was the first insider trading case it had brought involving ETFs. The agency and regulators around the globe have been concerned about the potential for abusive trading in ETFs and other derivative securities.

?We are aggressively working to identify and prosecute illegal insider trading across multiple markets and derivatives products,? said Sanjay Wadhwa, deputy chief of the SEC?s market abuse unit.

Since last week, ETFs have been thrust into the spotlight following the revelation that $2.3bn in losses at UBS was allegedly caused by a trader who worked on the bank?s ETF trading desk.

According to the SEC, the insider trading occurred during the re-balancing of the index underlying the SPDR S&P Retail ETF, which mirrors a basket of automotive, apparel and bargain retail stocks in an S&P index.

Goldman was the biggest institutional holder of the SPDR ETF and held short positions in the underlying stocks to minimise the risk in its position. When securities were added or deleted from the index, Goldman adjusted its hedges.

According to the SEC, Spencer Mindlin and his father used confidential information about the exact size of Goldman?s hedging trades to place bets to capitalise on the stock movement. They used an account in a family member?s name maintained outside Goldman.

? The Financial Times Limited 2011