Goldman Cuts Ties With Block-Trading Hedge Fund Islet

(Bloomberg) -- As U.S. investigators scrutinize how banks and hedge funds trade large blocks of stock, Goldman Sachs Group Inc. is pulling back from at least one money manager whose communications have drawn interest from authorities, according to people with knowledge of the matter.

The investment bank is cutting business ties with Joseph Samuels's Islet Management, the people said, asking not to be identified discussing private dealings. The reason for the decision -- and whether it relates to the investigation -- couldn't immediately be determined. Neither Goldman nor Islet have been accused of any wrongdoing in the inquiry touching a wide range of firms.

Representatives for Goldman and Islet declined to comment.

It's not clear how much business Goldman does with Islet. The hedge fund listed its prime brokers as Morgan Stanley, JPMorgan Chase & Co. and Bank of America Corp.'s Merrill Lynch unit in a July regulatory filing with the SEC. It also couldn't be determined whether Goldman has recently cut off business with any other hedge funds. New York-based Goldman is one of the dominant banks in bringing block trades to the market as well as new-issue and follow-on stock offerings.

Investment banks have been taking a closer look at their practices and potential risks as the U.S. Department of Justice and Securities and Exchange Commission pry into communications between dealmakers and money managers as part of a years-long investigation into the world of block trading.

Explainer: How Block Trades Work and Why the SEC Is Suspicious

The highly sensitive business -- in which banks try to sell off significant stakes in companies without sending prices tumbling -- depends heavily on relationships between their traders and outside investors willing to acquire slugs of stock with little notice. Bloomberg reported last month that authorities have been seeking information and communications from firms including Morgan Stanley and Goldman involving a roster of industry executives, among them Samuels.

Firms such as Islet, which is known as an active participant in block trades, typically maintain ties with multiple banks, drawing on those relationships to dip into the flow of available stock deals. Samuels founded the money manager in 2017, the year after he stepped down as head of U.S. equities trading at Och-Ziff Capital Management Group Inc., now known as Sculptor Capital Management Inc.