What's going on?
South Korea’s financial regulator handed out its biggest-ever fine on Wednesday, ordering Goldman Sachs to pay $6.7 million for illegal trading practices (tweet this) in the latest blow to the investment bank’s scandal-hit Asian divisions.
What does this mean?
Goldman’s been punished for practicing “naked” short-selling, a particularly risky way of betting against a company’s stock price. Whereas normal short-selling involves borrowing the stock you’re betting against, naked short-selling goes commando: you’re selling shares you don’t actually have. The practice is illegal in many countries, including South Korea – but that didn’t stop Goldman making about $35 million worth of naked trades there.
The fine is yet another headache for the investment bank, which is currently mired in the gigantic 1MDB corruption scandal. 1MDB isn’t a boyband; it’s a Malaysian state investment fund that was allegedly looted by the former Malaysian Prime Minister and his pals – to the tune of $4.5 billion, according to the US government. Goldman, which was paid $600 million for helping sell the fund’s bonds, is being investigated for its involvement. The former chairman of Goldman’s Southeast Asia branch has already pleaded guilty to charges of money laundering and bribery.
Why should I care?
For markets: Fines aren’t fine.
All these fines are bad news for Goldman, and with both Abu Dhabi and Malaysia demanding compensation over 1MDB the sums could really rack up. Goldman has consistently denied that it knew about the corruption, but fresh facts are still emerging: it now turns out that the then-CEO of the bank met privately with the scandal’s mastermind. Goldman’s stock has tumbled in recent weeks: investors really hate uncertainty. At least its Korean employees can now turn to medical marijuana for stress relief…
The bigger picture: Reputation has repercussions.
Goldman isn’t the only bank to be swept up in controversy. GAM Investments and Danske Bank are just two embroiled in scandals recently, damaging their share prices. Reputation is everything in finance – and once tarnished, it’s incredibly hard to rebuild.