U.S. regulators on Thursday accused a former Goldman Sachs trader of defrauding the Wall Street firm of $118m in a scheme of fabricated trades and fake entries.
Reuters reports that in a lawsuit filed in the U.S. District Court in Manhattan, the Commodity Futures Trading Commission (CFTC) said Matthew Taylor had manually entered fake trades in November and December, 2007, in an attempt to conceal an $8.3bn position in futures contracts.
CFTC has filed an enforcement action charging the trader with defrauding Goldman (although the firm isn't actually named in the complaint) by intentionally concealing from the firm the true huge size, as well as the risk and potential profits or losses (P&L) associated with the S&P 500 e-mini futures contracts (e-mini futures) position in a firm account traded by Taylor.
The CFTC’s civil complaint alleges that for several months, including at least November and December 2007, Taylor, while trading a firm account, entered fabricated e-mini futures trades into the firm’s manual trade entry system, thus concealing and misrepresenting the size of his true e-mini futures position within his employer’s internal systems. Taylor allegedly entered fabricated trades by bypassing Goldman’s internal system designed for entering and routing electronic trades to the Chicago Mercantile Exchange (CME), and instead manually entered them in a different internal system that routed the fabricated trades only to the firm's books and records and not to the CME.
Additionally, Taylor allegedly obstructed his employer’s discovery of his scheme by, among other things, providing false, misleading or deceptive information and reports to Goldman employees about the firm's e-mini futures position, risk, and P&L.
On or about December 13, 2007, Taylor’s scheme culminated in his concealment of an approximately $8.3bn long e-mini futures position, measured by notional value, as well as the corresponding risk and P&L associated with that position, the complaint charges. Taylor’s e-mini futures trades and his concealment resulted in realized losses to Goldman of approximately $118,440,000 after the firm's offset and liquidation of the position, according to the complaint.
In its continuing litigation, the CFTC seeks civil monetary penalties, trading and registration bans, and a permanent injunction prohibiting further violations of the federal commodities laws, as charged.
Reuters says that the CFTC complaint did not name Goldman, but referred to Taylor's employer at the time of the suspected fraud only as a 'large Futures Commission merchant'.
However, broker records from the Financial Industry Regulatory Authority showed that Taylor was discharged from Goldman in December 2007, for 'alleged conduct related to inappropriately large proprietary futures positions in a firm trading account'.
Goldman said in a statement: 'Matt Taylor provided false explanations when confronted about irregularities we detected in his account during the December 14, 2007 trading day. He admitted his misconduct following the market close, and was promptly removed from his job and terminated soon thereafter. Since these events, which had no impact on customer funds, we have further enhanced our controls'.