Goldman fined over hidden $8.3bn position

CFTC says bank failed to oversee trader

Goldman Sachs has been ordered by a US regulator to pay $1.5m for failing to stop a former trader from hiding an $8.3bn position from the investment bank five years ago.

The Commodity Futures Trading Commission (CFTC) said in a statement on Friday that Goldman had failed in “certain aspects of its risk management” in relation to the trader. Matthew Marshall Taylor built up and concealed a position in S&P 500 e-mini futures, the CFTC said in a civil complaint last month.

“Goldman failed to have policies or procedures reasonably designed to detect and prevent the manual entry of fabricated futures trades into its front office systems,” the CFTC said in its order. “As a result, on seven trading days in November and December 2007, Taylor circumvented Goldman’s risk management.”

However, Bart Chilton, one of the CFTC’s five commissioners, said that the $1.5m fine was far too small to punish Goldman for, or dissuade it from, “illegal activity”.

“In this instance, given the egregious nature of the failure to supervise adequately, combined with the high number of violative transactions, I believe that the monetary penalty should be significantly higher in order,” Mr Chilton said in a statement.

Goldman lost $118m because of the trades and subsequently removed Mr Taylor from his job. Mr Taylor went on to work at Goldman competitor Morgan Stanley.

The CFTC also alleged that Goldman did not disclose Mr Taylor’s “concealment and entry of fabricated trades in these form filings” after reporting the trader.

“Taylor’s activity was flagged by our controls on December 14, 2007 with no impact to customer funds,” Goldman said in a statement in response to the CFTC order. “After initially providing false explanations during the trading day, Taylor admitted his conduct following market close and was subsequently terminated. Since these events, we have enhanced our controls. We’re pleased to have settled this matter.”

Mr Taylor’s lawyer has “strenuously” denied all of the allegations in the CFTC’s earlier complaint. The Financial Times reported in November that Goldman was in talks to settle with the CFTC, which oversees futures commission merchants.

With additional reporting by Gregory Meyer.

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