Washington, D.C., Sept. 21, 2011 — The Securities and Exchange Commission today charged a former Goldman, Sachs & Co. employee and his father with insider trading on confidential information about Goldman’s trading strategies and intentions that he learned while working on the firm’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). He tipped his father Alfred C. Mindlin, a certified public accountant. Father and son then illegally traded in four different securities underlying the XRT with knowledge of massive, market-moving trades in these securities that Goldman would later execute.
The case marks the SEC’s first insider trading enforcement action involving ETFs.
“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.
Sanjay Wadhwa, Associate Director of the SEC’s New York Regional Office and Deputy Chief of the Market Abuse Unit, added, “We are aggressively working to identify and prosecute illegal insider trading across multiple markets and derivatives products regardless of the complexity of the trading pattern that we have to unravel in our investigations.”
According to the SEC's order instituting proceedings against the Mindlins, the 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’s Division of Enforcement alleges that by virtue of his position on Goldman’s ETF desk, Spencer Mindlin knew Goldman’s current nonpublic position in the XRT and Goldman’s nonpublic plans to trade large amounts of securities underlying the XRT in order to hedge its position in the XRT. Spencer and Alfred Mindlin began purchasing and selling the four individual securities underlying the XRT within months after Spencer Mindlin joined Goldman’s ETF desk. They placed almost all of their trades in a brokerage account in the name of another family member. Spencer Mindlin failed to disclose his and his father’s trading to Goldman.
According to the SEC’s order, Spencer Mindlin learned on multiple occasions about Goldman’s trading intentions through e-mail communications he received shortly before he and his father placed their trades. In one instance when Alfred Mindlin phoned TD Ameritrade to upgrade the family member’s account to allow for the trading of options, he received a call on another line from Spencer Mindlin while on hold with the TD Ameritrade representative. Because the TD Ameritrade call was recorded, Spencer and Alfred Mindlin’s conversation discussing a trade was captured on tape. In later instances, Spencer Mindlin impersonated his father on at least four calls to TD Ameritrade. On one call, he instructed the firm not to execute a trade too early in the day because this would “chew into my profit – my profit on this trade.” The Mindlins obtained at least $57,000 in illicit profits through their insider trading.
The SEC’s Division of Enforcement alleges that by engaging in the misconduct described in the SEC’s order, the Mindlins willfully violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. The proceedings will determine what relief, if any, is in the public interest against the Mindlins, including disgorgement of ill-gotten gains, prejudgment interest, financial penalties, and other remedial relief.
The SEC’s investigation was conducted by Sandeep M. Satwalekar and Maureen F. Lewis of the SEC’s Market Abuse Unit in New York and by Robert Murphy and Stephen Johnson of the New York Regional Office. Alexander M. Vasilescu will lead the SEC’s litigation efforts.