Early Reports of T-Bond 'Death' May Bring Charges

April 1, 2002 (PLANSPONSOR.com) - Goldman Sachs could be charged with securities fraud in the wake of its role in releasing information about the US Treausury's decision to suspend issuance of the 30-year Treasury bond last fall.

The news triggered the biggest bond market rally in 14 years as traders scrambled to snap up bonds both before and after the news was made public.

According to published reports, the Securities and Exchange Commission (SEC) will send a notice to the investment bank, saying it plans to recommend filing civil charges about the Treasury leak.

According to a source familiar with the situation, once the notice is filed, Goldman will have the opportunity to present its case as to why it shouldn’t be charged.

Early Editions

The information release stumbled through a couple of mishaps during its October 31 communication, not the least of which was an electronic glitch that resulted in the publication of the announcement on the Treasury web site 17 minutes before the slated embargo time of 10 a.m. ET. 

However, even before that an internal Treasury review found a member of its debt advisory panel and a principal at a New Jersey analysis firm had already heard about the news, according to CBSMarketWatch.  Realizing the gaffe, Treasury made the official announcement at 9:49 a.m. 

Additionally, Washington-based consultant Pete Davis, present at an under-wraps press conference, conceded afterward that he had called clients before the end of the embargo, offering them details of the upcoming change in practice.  The SEC has also informed Davis that he may be charged, according to Dow Jones, citing people familiar with the matter.

Client ‘Tell’

Davis has named a few of the clients who received the information, but while Goldman is a client, they weren’t on Davis’ list.  However, Goldman has acknowledged that it received the tip at about 9:30 a.m. that morning, according to Dow Jones.  Davis says that while he informed clients, he told them it was embargoed pending the department’s official announcement. 

But according to Dow Jones, some securities lawyers say if Goldman wasn’t told that the information was embargoed and wasn’t supposed to be trading on it, the firm may not have engaged in improper activity.