Former Goldman Sachs Group Inc. (GS:US) trader Matthew Taylor was sentenced to nine months in prison for concealing an unauthorized $8.3 billion trading position in 2007 that caused the bank to lose $118 million.
U.S. District Judge William H. Pauley in Manhattan ordered Taylor, 34, to repay the full amount of the loss to Goldman Sachs, concluding the New York-based bank is a victim of his crimes and is therefore entitled to the restitution.
The judge criticized prosecutors for waiting more than five years to file charges and chastised Goldman Sachs for failing to alert rival Morgan Stanley of Taylor’s actions after the trader went to work there.
Pauley also accused prosecutors of minimizing the size of the losses to the bank in a plea agreement, so Taylor could face a reduced term under federal sentencing guidelines. The agreement calculated the loss at $2.5 million, the money Taylor earned from the bank.
“This case presents a paradigm of everything that is wrong with Wall Street and the regulators who are charged with protecting the public,” Pauley said in court yesterday. “Goldman was silent about Taylor’s lies to his superiors that he had lost $118 million. Astonishingly, Goldman then watched as one of its competitors re-hired Taylor. So much for Goldman’s concerns about the integrity of the markets.”
The judge questioned why it took so long for regulators and prosecutors to bring cases against Taylor. He said that Goldman Sachs only told the Financial Industry Regulatory Authority that Taylor had “engaged in unauthorized trades.”
Goldman Sachs paid the Commodity Futures Trading Commission $1.5 million last December to settle allegations it failed to supervise Taylor.
“With profits of more than $7 billion, Goldman earned the ability to pay that penalty in a couple of minutes,” Pauley said.
The judge also faulted prosecutors and regulators for issuing press releases taking credit for the investigation of Taylor’s case.
“I cannot call it justice or oversight when it took the government six years to bring a rogue trader to justice when he confessed to it on day one,” Pauley said. “At some point, justice has to be swift if it’s going to be meaningful.”
Manhattan U.S. Attorney Preet Bharara, whose office prosecuted the case, said prosecutors first learned of the Taylor matter on Nov. 10, 2012. That was four days after the Commodity Futures Trading Commission accused Taylor in a lawsuit of concealing his $8.3 billion position.
“Less than five months later, on April 3, 2013, Taylor was charged in an information and pled guilty,” Bharara’s office said yesterday in a statement.
Michael DuVally, a spokesman for New York-based Goldman Sachs, said the company disclosed the reason for Taylor’s termination in a notice filed with the Financial Industry Regulatory Authority.
“We were clear in Taylor’s U5 that he was fired for misconduct related to ‘inappropriately large proprietary futures positions in a firm trading account,’” DuVally said in an e-mail.
Taylor’s lawyer, Thomas Rotko, yesterday urged the judge not to incarcerate him. Rotko said his client had already been punished sufficiently for his crimes, citing the loss of his job and career. Taylor now operates a pool-cleaning service in Southern Florida, he said.
Taylor pleaded guilty in April to a single count of wire fraud. He told the judge he took the position to boost his standing, and his bonus, at Goldman Sachs.
“I had worked so hard for my job at Goldman and was facing failure,” Taylor said in a letter to the judge. “I was so scared of losing the success that at the time I valued so dearly.”
Taylor apologized to the court, his family and former employers for his actions.
“Now, six years after these events as I work outside, I can’t conceive of the short-sighted and panicked decisions I made in 2007,” he said.
Prosecutors argued that a prison term of 33 months to 41 months was reasonable.
Pauley, explaining why he imposed less prison time, said Taylor’s actions were “aberrant” and had occurred over the span of a day and a half.
Rotko said after court that his client intends to repay the funds to the best of his ability.
“Mr. Taylor accepts the judgment of the court,” he said. “We are pleased the judge saw this matter as we did, as an indictment of the regulator system itself.”
Taylor made the unauthorized trades to compensate for losses in his trading account the previous month, prosecutors said. Taylor’s salary in 2007 was $150,000 and he expected a $1.6 million bonus, prosecutors said.
After the trader ran up the $8.3 billion position, which exceeded the combined limit for his 10-trader desk, Taylor was contacted by a member of the bank’s market risk management and analysis team. He falsely claimed the trading account had a position of $65 million, according to the government.
Goldman Sachs lost money when it sold off the position to reduce its risk, according to prosecutors.
Taylor, who had handled client-related equity derivative trading at New York-based Morgan Stanley (MS:US), left the firm in July 2012, the company said last year. His departure wasn’t related to the complaint, said a person familiar with the situation who asked not to be identified because the information was private.
According to the CFTC complaint, Taylor concealed his position by bypassing Goldman Sachs’s internal system for routing trades to the Chicago Mercantile Exchange and manually entering fabricated futures trades in a different internal system.
The case is U.S. v. Taylor, 13-cr-00251, U.S. District Court, Southern District of New York (Manhattan). The CFTC case is U.S. Commodity Futures Trading Commission v. Taylor, 12-cv-08170, U.S. District Court, Southern District of New York (Manhattan).
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