On September 21, 2011, the Securities and Exchange Commission (“SEC”) charged a former Goldman, Sachs & Co. employee and his father with insider trading based on confidential information about Goldman’s trading strategies and intentions that the Goldman employee learned while working on Goldman’s exchange-traded funds (ETF) desk.
The SEC’s Division of Enforcement alleges that Spencer D. Mindlin obtained non-public details about Goldman’s plans to purchase and sell large amounts of securities underlying the SPDR S&P Retail ETF (XRT). The allegations are that he provided this information to his father Alfred C. Mindlin, a CPA. According to the SEC, the Mindlins then illegally traded in four different securities underlying the XRT with the knowledge that Goldman was going to make significant trades in the same securities that would cause the market for the securities to move.
“With his father’s helping hand, Spencer Mindlin exploited his inside knowledge of Goldman’s complex hedging strategies to line his own pockets,” said George S. Canellos, Director of the SEC’s New York Regional Office.
According to the SEC, the Mindlins’ improper insider trading occurred in December 2007 and March 2008. Goldman was the largest institutional holder of the XRT in order to allow its customers to short the XRT. To hedge its long position in the XRT, Goldman shorted the individual securities underlying the XRT.
The SEC alleges that Spencer Mindlin misused non-public information that he learned on Goldman’s ETF desk about Goldman’s positions in XRT and Goldman’s plans to trade large amounts of securities underlying the XRT. Within months after Spencer Mindlin joined Goldman’s ETF desk, Spencer and Alfred Mindlin began purchasing and selling the four individual securities underlying the XRT, primarily in an account in the name of another family member. But Spencer Mindlin failed to disclose the trading to Goldman.