8:16 p.m. | Updated
The Securities and Exchange Commission on Wednesday accused a former Goldman Sachs employee of trading on inside information gleaned while working at the bank, saying the man once tipped his father to a crucial shake-up in Goldman’s exchange-traded funds division.
Spencer D. Mindlin, who worked on Goldman’s exchange-traded funds desk, learned that the firm planned to sell several securities that were included in a major fund, according to the S.E.C. Mr. Mindlin later alerted his father, Alfred C. Mindlin, who the agency said then traded on the confidential information, turning a modest $57,000 profit.
On one occasion, the younger Mr. Mindlin instructed his brokerage firm to place a trade at just the right moment so as to not “chew into my profit,” according to the agency.
The Mindlins never disclosed their trading to Goldman, which is not accused of any wrongdoing. In a statement, Goldman noted that the trades in question were executed in private accounts held outside of the firm.
Robert Knuts, a lawyer for the family and a former agency enforcement official, disputed that the Mindlins had any confidential insights. The trading, he said, instead was based on public information and a common “phenomenon” within the exchange-traded fund industry. “The Mindlins simply did nothing wrong and the S.E.C. should not have brought these charges,” he said.
The agency filed a civil cease-and-desist order against both the Mindlins on Wednesday, choosing not to mount a lawsuit in federal court. The agency concluded that such a small and complex matter might not resonate with a jury, according to a person with knowledge of the case.
The case is the latest to emerge from the commission’s sprawling crackdown on insider trading — and the second such matter this year to mention Goldman Sachs. In March, the agency accused a former Goldman director, Rajat K. Gupta, of leaking confidential information about Goldman.
The latest case, however, is the first insider-trading matter to involve the highly lucrative world of exchange-traded funds. The industry is also at the center of a scandal involving rogue trading. Last Thursday, a director of exchange-traded funds for UBS in London, Kweku M. Adoboli, ss arrested for losing $2.3 billion of the bank’s money.
Once a sleepy corner of Wall Street, exchange-traded funds have been heating up in recent years. The funds allow investors and financial firms to access a basket of stocks or commodities through a single security.
The Securities and Exchange Commission’s case against the Mindlins stems from late 2007, when Goldman moved to scale back its exposure to an exchange-traded fund that was tied to retail stocks in the Standard & Poor’s 500-stock index. At the time, Goldman had a larger stake in the fund than any other firm.
The younger Mr. Mindlin, now 33, learned through internal bank e-mails that Goldman was planning to sell short some securities underlying the fund. Soon after, Mr. Mindlin and his father began buying and selling options and shares on four of the same securities — the Sport Supply Group, PC Mall, ValueVision and Stage Stores.
From December 2007 through March 2008, the father and son placed a series of trades in a brokerage account belonging to another family member.
Ultimately, the S.E.C. used recordings to tie the men to the trades. In December 2007, while on the phone with his brokerage firm, TD Ameritrade, the elder Mr. Mindlin received a call from his son. TD Ameritrade recorded the conversation, capturing a discussion about their trades.
Mr. Mindlin, a junior-level associate at Goldman, resigned from the firm in August 2009 after an eight-year career there. He knew at the time that the S.E.C. was investigating his trading, according to two people with knowledge of the case, though the agency did not formally notify the family of pending legal action until late 2010
Mr. Mindlin, who has studied computer science in the past, is now “developing technologies relating to the securities industry,” according to the S.E.C. The father, now 68, is a certified public accountant.