Gold­man Sachs faces fine for al­leged naked short­ing

The Korea Times - - BUSINESS - By Jhoo Dong-chan jhoo@ko­re­

The fi­nan­cial au­thor­i­ties said they will take stern mea­sures against the Seoul branch of Gold­man Sachs Group for al­leged “naked short sell­ing.” Short sell­ing refers to the sale of bor­rowed shares in the hopes of mak­ing a profit from a price fall by buy­ing the shares back at a lower price.

Naked short sell­ing is the prac­tice refers to con­duct­ing short sell­ing with­out ac­tu­ally bor­row­ing the stocks first and is pro­hib­ited in Korea.

Ac­cord­ing to the Fi­nan­cial Su­per­vi­sory Ser­vice (FSS), Thurs­day, Gold­man Sachs In­ter­na­tional placed a short sell­ing or­der via its Seoul branch for 350 stocks on the bourse, May 30.

Of the 350 stocks, the Seoul branch failed to buy back 20 or about 1.38 mil­lion shares in time, in­di­cat­ing the 20 weren’t in its pos­ses­sion at the time. They were re­port­edly three KOSPI and 17 Kosdaq stocks worth about 6 bil­lion won ($5.6 mil­lion).

“It seems like Gold­man Sachs In­ter­na­tional com­mit­ted to a short sell­ing deal with­out con­firm­ing if the shares were ac­tu­ally bor­rowed,” said an FSS official.

“The FSS is cur­rently look­ing into the case, but it has con­firmed through the case that naked short­ing is sys­tem­i­cally pos­si­ble in the na­tion’s stock mar­ket. There is also no in­stru­ment to over­see such a prac­tice at this point. Se­cu­ri­ties firms are the only play­ers here that could closely ex­am­ine whether in­vestors are com­mit­ting naked short sell­ing.”

The fi­nan­cial overseer launched an in­ves­ti­ga­tion June 4, and said it will con­tinue through this week, not­ing it could take stern ac­tion against Gold­man Sachs.

Gold­man Sachs In­ter­na­tional blamed the bor­rower for uni­lat­er­ally can­cel­ing the trans­ac­tion with its Seoul branch.

“The stock lender sud­denly can­celed bor­row­ing shares with us. But our Seoul branch placed a short sell­ing or­der for the 20 items with­out know­ing this,” Gold­man Sachs said in an ex­pla­na­tion sub­mit­ted to the FSS.

Naked short sell­ing has been banned in the na­tion’s stock mar­ket since 2000, but con­cerns are mount­ing among pri­vate in­vestors as they be­lieve they lose in the mar­ket be­cause such a prac­tice is still preva­lent among in­sti­tu­tional in­vestors.

The naked short sell­ing case in­volv­ing Gold­man Sachs came a week af­ter the FSS an­nounced a set of reg­u­la­tions fol­low­ing Sam­sung Se­cu­ri­ties’ “fat-fin­ger er­ror” where the bro­ker­age mis­tak­enly gave 2.8 bil­lion non-ex­is­tent com­pany shares to its em­ploy­ees as div­i­dends in­stead of 2.8 bil­lion won.

Lloyd C. Blankfein, Gold- man Sachs chair­man

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