By Sarah N. Lynch
WASHINGTON (Reuters) - U.S. regulators charged a former Goldman Sachs employee and his father with insider trading on confidential information about Goldman's exchange-traded fund strategy.
The U.S. Securities and Exchange Commission said it was the first time it had brought an insider-trading enforcement action involving ETFs. The case is the latest move by the commission in its effort to crack down on insider trading on Wall Street.
In a complaint filed with the SEC's internal administrative court, the SEC said on Wednesday that Spencer Mindlin, who worked on Goldman's ETF desk from September 2007 until his resignation in August 2009, and his father, Alfred Mindlin, had made at least $57,000 in illicit trading profits.
Robert Knut, an attorney for the Mindlins, said the SEC's accusations against his clients were without merit.
"Spencer Mindlin did not provide any non-public information to make any securities trades," Knut said, adding that Spencer Mindlin was merely helping his father understand and execute a trading strategy. "The Mindlins did nothing wrong, and the SEC should not have brought these charges."
The commission said Spencer Mindlin, 33, was able to get nonpublic information about Goldman's plans to buy and sell securities underlying the SPDR S&P Retail Exchange-Traded Fund, which replicates the performance of the Standard & Poor's Retail Select Industry Index.
The SEC said he then tipped off his father, 68, a certified public accountant who resides in Massapequa, New York, and Delray Beach, Florida. Together, the SEC alleges, the father and son traded illegally in four different securities that underlie the ETF.
"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 Canellos, director of the SEC's regional office in New York.
The SEC said the trades by the father-son duo were made in a brokerage account under a family member's name, and that Spencer Mindlin he did not disclose them to his employer.
Andrea Raphael, a spokeswoman for Goldman Sachs, said the firm cooperated fully with the investigation. "All of the trading was conducted in private, undisclosed accounts held outside of Goldman Sachs and none of the trading involved client information," she said.
The insider trading allegedly occurred in December 2007 and March 2008 at times when Goldman's ETF desk was trading stocks in the S&P-linked fund because of scheduled quarterly changes to the index. At the time, Goldman, was the largest institutional holder of the ETF.
The agency alleges that Spencer Mindlin knew about Goldman's planned trades ahead of the rebalancing, and was able to profit from transactions in thinly traded, lesser-known companies such as Sport Supply Group Inc and PC Mall Inc, among others.
Knut, the Mindlins' lawyer, said that his clients' trading strategy was based on "the well known rebalancing phenomenon within the ETF industry and publicly available information."
(Reporting by Sarah N. Lynch; additional reporting by Aaron Pressman, Andrea Shalal-Esa; Jessica Toonkel and Jonathan Stempel; Editing by Eddie Evans and Ted Kerr)