Goldman Sachs Trader Faces Prison For Secret $8B Position

Perp walk for Matthew Taylor on Wednesday.

Former Goldman trader Matthew Taylor exits federal court in New York on April 3, 2013.

How is this materially different from Goldman Sachs hiding from clients the fact that the CDO they just bought was custom-built by hedge fund manager John Paulson, designed to fail -- stuffed with the worst of subprime mortgage dreck on purpose -- and that both Goldman and Paulson would be taking a secret short position on the CDO.

Here's your answer: there is no difference.

But Goldman won big with Paulson, only the client got hurt, so no one went to jail.

In this case, Goldman lost $118 million.

So you can bet your ass that trader is going to prison.

By far the best part of the story is Taylor's admission that he created the secret position in order to boost his bonus.  For the first time in a while, bonus-driven fraud hurts a Wall Street bank more than it hurts taxpayers.  And for a final laugh, Morgan Stanley hired Taylor in March 2008, three months after Goldman Sachs fired him.

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Ex-Goldman Trader Faces Prison For Hiding $8 Billion Position

Bloomberg

Matthew Taylor, a former Goldman Sachs trader, pleaded guilty to concealing an unauthorized $8.3 billion trading position in 2007, causing the bank to lose $118 million.

Under an agreement with the government, Taylor, 34, pleaded guilty to a single count of wire fraud yesterday before U.S. District Judge William H. Pauley in Manhattan federal court. He told the judge he took the position to boost his standing, and his bonus, at Goldman Sachs.

Reading from a prepared statement, Taylor told Pauley that on Dec. 13, 2007, he accumulated a position 10 times the amount he was allowed to take in futures contracts tied to the Standard & Poor’s 500 Index.  He said he made false entries in a manual trading system to hide the position on the CME Globex electronic-trading platform used by Goldman Sachs.  He said he lied when questioned about the position by other Goldman Sachs employees.

“I accumulated this trading position and concealed it for the purpose of augmenting my reputation at Goldman and increasing my performance-based compensation,” Taylor said. “I am truly sorry.”

In a one-count charging document, prosecutors said Taylor made the unauthorized trades to compensate for losses in his trading account the previous month.  Taylor’s salary in 2007 was $150,000 and he expected a $1.6 million bonus, prosecutors said.

After Taylor ran up the $8.3 billion position, which exceeded the combined limit for his 10-trader desk, he was contacted by a member of the Market Risk Management and Analysis team.  He falsely claimed the trading account had a position of $65 million, rather than about $8 billion, according to the government.

The maximum sentence for wire fraud is 20 years in prison.  Both sides agreed that federal sentencing guidelines, which aren’t binding, call for Taylor to get 33 to 41 months in prison and pay a fine of $7,500 to $75,000.

Pauley asked why prosecutors didn’t seek a higher guideline range for Taylor for jeopardizing the safety and soundness of a financial institution.  “I want to just make it very clear to the defendant and his counsel that the court is puzzled by the lack of any enhancements in this case, with a loss of $118 million,” the judge said.

Morgan Stanley hired Taylor in March 2008, three months after Goldman Sachs fired him.

Continue reading...

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Update - How Matthew Taylor tried to regain his Goldman bonus

Comments

[DailyBail]

Taylor, an equities derivatives trader for Goldman, was earning a salary of about $150,000 in 2007 and had been expecting a bonus of about $1.6 million for the year. But around November 2007, he lost a significant portion of his profits for the year. His bosses told him his bonus would suffer. They also told him to shrink the overall risk in his account.

On Dec. 13, 2007 Taylor bought so many mini futures contracts tied to the S&P 500 that he was holding a notional value of about $8.3 billion. To hide the amount, he then recorded about 16 fake trades involving the sale of the same contracts in a separate, manual trading system.

At the end of the day on Dec. 13, Taylor submitted a fake profit-and-loss statement that showed a loss of about $2 million in the account, rather than the real profit of about $52 million.

http://blogs.marketwatch.com/thetell/2013/04/03/how-matthew-taylor-tried-to-regain-his-goldman-bonus/

[h5mind]

The take away point for the rest of us: steal small, go to prison for a long time, long time. Steal big, and get off with a fine amounting to pennies on the thousand, and spend a couple years in a federal country club.

[SKINFLINT]

Well I was going to suggest that Mr. Taylor shave his beard because Lloyd's man member might get stubble burn from Taylor's lips being wrapped around well, you know. I guess he is someone else's boy toy now. Talor maid.

[Howard T. Lewis III]

Even the small trout are tasty when pan fried. Compared to armed desperadoes, nailing these guys is like working the Bush41 trout farm alongside the scumbag derivative weasel and other financial trash experts like this little fellow. Nailing the central bank's 'tits out' cheerleader, 'The Bernanke', would be nice. Getting ALL the Washington D.C.'corporation' aficionados on the filet table before the application of herbs and spices would make me believe in the system. Or we could feed them to the sharks. We behave as a nation and want to believe white collar law enforcement is awake. To accept the 1871 incorporation of the U.S.A. was to 'drop trou' for the central bank. It was a serious misdeed. Heads must roll. I might suggest the heads of the various organized crime groups, but they are currently being faithfully serviced by the boytoy of The Ministry of Unnatural Acts in the White House. Semper fidelis. Let's jail the lot.

[bob]

I hope this dweeb has a real friendly bunk butt buddy! He deserves such company.

[DailyBail]

Should Goldman’s rogue trader go free?

Commentary: Former Goldman trader faces 20 years in jail while firm pays a fine

DENVER (MarketWatch) — Put a 20-something in front of a computer. Give him billions of dollars to make bets. Tell him that if he wins, he’ll get millions of dollars, and if he loses, he’ll be fired. Surround him with cocky, young colleagues full of ceaseless banter, hypercompetitive antics, salty jokes and the insatiable lust for overnight riches. Throw in the added volatility of a looming financial crisis.

http://www.marketwatch.com/story/should-the-rogue-trader-go-free-2013-04-05?link=home_carousel