Matthew Taylor, a former Goldman Sachs banker, has pleaded guilty to wire fraud for hiding $8.3bn in futures positions he was not authorised to make.
Mr Taylor surrendered to the Federal Bureau of Investigation on Wednesday and entered his guilty plea as part of deal with the government later that morning.
The criminal charge mirror civil allegations filed last year by the Commodity Futures Trading Commission.
The CFTC alleged over seven days in November 2007 and December 2007, while working for Goldman Sach, Mr Taylor concealed the size, risk and losses associated with positions he took in the S&P 500 e-mini futures contract. When confronted by trading disparities, authorities say, Mr Taylor initially misled Goldman personnel.
Mr Taylor was released on bond and is set to be sentenced on July 26.
“The unfortunate events of late 2007 were an aberration,” said Tom Rotko, Mr Taylor’s attorney. “He looks forward to the opportunity to put this behind him and resume what has otherwise been a productive and exemplary life.”
At the time of the alleged trading, Mr Taylor entered false trades in an internal bank system that bypassed the Chicago Mercantile Exchange, where the contract is traded, according to the CFTC.
As Mr Taylor increased the size of his position in the e-mini futures contracts on December 13, 2007 that ultimately reached $8.3bn, the CFTC alleges, he “periodically adjusted the size and price of his manual fabricated trades” to ensure his position remained hidden
In one instance, the CFTC said, Mr Taylor placed a real trade of 34,604 e-mini futures contracts that day. He then manually entered a fabricated sale of 33,000 contracts. The false sale had the effect of appearing to reduce Mr Taylor’s e-mini positions from 37,104 contracts to 4,104 contracts, according to the CFTC.
Goldman said its internal controls identified the allegedly fabricated trades the following day and subsequently dismissed Mr Taylor. Goldman said the alleged scheme had no impact on customer funds. When Goldman unwound the trades the firm’s overall loss from the alleged scheme totalled $118m.
Authorities allege when questioned about the trades by Goldman personnel, Mr Taylor mislead them stating the $8.3bn position was a “booking issue”.
Goldman agreed to pay $1.5m to the CFTC last year for failing “certain aspects of risk management.”
Goldman disclosed in regulatory filings that Mr Taylor was dismissed for building an “inappropriately large” proprietary trading position. The CFTC cited Goldman for failing to inform the National Futures Association and CFTC that Mr Taylor attempted to conceal that position with false trades until the CFTC opened its investigation.
Three months after Goldman dismissed Mr Taylor he was hired by Morgan Stanley, according to regulatory filings.
Mr Taylor left Morgan Stanley last July. A person familiar with the matter said it was unrelated to his trading at Goldman. The CFTC sued Mr Taylor in November seeking a $130,000 penalty.
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