monday, 10 december of 2012

Ex-trader´s gambit bites Goldman


Ex-trader's gambit bites Goldman

Goldman Sachs Group Inc. became the latest top Wall Street bank to suffer a trading-related black eye, agreeing to pay $1.5 million to settle civil charges that it failed to supervise a former trader.

The charges, brought by the Commodity Futures Trading Commission, involved a former trader who allegedly concealed an $8.3 billion futures position in 2007.

One CFTC commissioner dissented from part of the agency's decision to settle the matter because he thought the fine should have been at least five times higher in light of the "egregious" nature of Goldman's failure to supervise the trader.

The CFTC filed charges against the trader, Matthew Marshall Taylor, in Manhattan federal court on Nov. 8, saying he defrauded his employer and obstructed Goldman's discovery of the position, which led to a loss of $118.4 million.

The Goldman settlement, announced Friday, comes the same week it emerged that a top Morgan Stanley bond trader was under investigation for trades made in 2008, while he worked at Goldman. Earlier this year, J.P. Morgan Chase came under fire for derivatives trades out of London that resulted in a loss of more than $6 billion.

The CFTC alleges that Mr. Taylor bypassed management systems meant to keep track of traders and recorded fake transactions to hide his positions. Mr. Taylor, through his attorney Ross Intelisano, declined to comment Friday about Goldman's fine, but has previously "strenuously denied" all allegations.

According to Finra records, Mr. Taylor was employed by Goldman from March 2005 to January 2008. He worked at Morgan Stanley from September 2001 to February 2005 and again from March 2008 to August 2012.

Mr. Taylor allegedly circumvented the electronic trading system and fabricated trades in "e-mini" futures linked to a broad U.S. equities index on several days in November and December 2007, according to the CFTC complaint.

The CFTC says Mr. Taylor, using a manual system typically for trades done over the counter or those handled by a floor broker, entered 60 false "sell" trades to make it look as if he was reducing his position. The alleged fake trades made it seem as if his position totaled $2.4 billion. On Dec. 13, the bank discovered the contracts he traded were valued at $8.3 billion.

The next day, when confronted by Goldman officials about his position, Mr. Taylor provided false information, the CFTC said. Mr. Taylor allegedly reported a loss of $52.2 million when it was actually $108.2 million. After the firm liquidated the position, the trading resulted in a loss of $118.4 million, according to the CFTC.

Goldman terminated Mr. Taylor on Dec. 21, 2007, for "alleged conduct related to inappropriately large proprietary futures positions in a firm trading account," according to his Finra record.

The CFTC alleged that Goldman didn't have procedures in place to detect and prevent fake trades from being recorded in their books, which led to Mr. Taylor being able to hide his positions. The agency also said in the complaint against Goldman that the firm wasn't fully forthcoming with regulators when Mr. Taylor was fired.

Although Goldman later told Finra that Mr. Taylor "attempted to conceal his trading via fabricated trades," Goldman didn't provide that same information to the CFTC, the agency said,

Goldman settled the charges without admitting or denying wrongdoing. The CFTC hasn't reached a settlement with Mr. Taylor. "After initially providing false explanations during the trading day, Taylor admitted his conduct following market close and was subsequently terminated," a spokesman for Goldman said in a statement. He said the firm has enhanced controls since then.

Morgan Stanley was aware of the information filed to Finra at the time he was rehired in early 2008, according to a person familiar with the matter. Mr. Taylor had no regulatory issues while he was at Morgan Stanley, according to this person.

CFTC Commissioner Bart Chilton said he thought Goldman's fine should have been at least $7.8 million, under current fine limits. "I believe that the monetary penalty should be significantly higher in order to represent a sufficient punishment, as well as to denote a meaningful deterrent," Mr. Chilton said in a statement.

Mr. Chilton said he has requested that Congress drastically raise the limits on the fines the commission can levy.

(Published by WSJ - December 7, 2012)

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