It sure doesn't look that smart now.
The Wall Street Journal reports that Morgan Stanley plans to claw back some of the pay it owes a trader who pleaded guilty last week to a federal wire fraud charge for misleading his former employer, Goldman Sachs, according to people familiar with the case.
Goldman fired the trader, Matthew Taylor, in December 2007 for hiding an $8.3bn futures trade. Morgan Stanley, which hired him only a few months later, now aims to withhold $100,000 to $200,000 in deferred compensation on grounds he misrepresented the circumstances of his exit from Goldman, the people said.
Taylor had previously worked for Morgan Stanley, and it this might have been the firm's blind-spot. The newspaper quotes Taylor's lawyer, Thomas Rotko, who says: 'Morgan Stanley decided, based upon their own investigation and their prior knowledge of Matt Taylor, to rehire him - fully cognizant that Goldman reported that he was discharged due to conduct related to inappropriately large futures positions in a firm trading account'.
On firing Taylor Goldman filed a U5 with FINRA, which explicitly stated that Taylor had been terminated due to serious misconduct, but Morgan Stanley claims that the characterization of Taylor's actions could have described a number of different scenarios - including an honest dispute of the size of a trade.
Reading from a prepared statement last week, Taylor told U.S, District Judge Pauley that on December 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 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'.
One banker told Here Is The City: 'One quick off-the-record telephone call to Goldman Sachs would surely have let the cat out of the bag. Whatever way you spin this, it doesn't look good for Morgan Stanley. The people involved in this hiring decision should have a good hard look at how they could have done things differently'.
Blind Spot Covered Ex-Trader's Trail (subscriber content)