Irvin Goldman, who oversaw risks in the JPMorgan Chase & Co. (JPM) unit that suffered more than $2 billion in trading losses, was fired by another Wall Street firm in 2007 for money-losing bets that prompted a regulatory sanction at the firm, Cantor Fitzgerald LP, three people with direct knowledge of the matter said.
JPMorgan appointed Goldman in February as the top risk official in its chief investment office while the unit was managing trades that later spiraled into what Chief Executive Officer Jamie Dimon called “egregious,” self-inflicted mistakes. The bank knew when it picked Goldman that his earlier work at Cantor led regulators to penalize that company, according to a person briefed on the situation.
JPMorgan’s oversight of risk in its chief investment office has become a focal point as U.S. authorities examine the incident and lawmakers debate how to prevent banks from making wagers that might endanger depositors. Goldman was given the risk-oversight job after his brother-in-law, Barry Zubrow, 59, stepped down in January as JPMorgan’s top risk official to become head of corporate and regulatory affairs, according to a person briefed on the matter.
Less than a week after the loss became public, the bank stripped Goldman of his duties, though he remains at the firm, according to a person familiar with the situation. Chetan Bhargiri was named to succeed him.
The Cantor case culminated in 2010 when the enforcement arm of NYSE Arca Inc. fined Cantor $250,000 after finding it failed to supervise Goldman, 51, who was buying and selling the same stocks in personal accounts that he traded in a proprietary account at the New York-based brokerage. His stock investments, one of which plunged in December of 2006, presented a conflict of interest that could have affected his investment decisions, NYSE Arca found, according to a settlement document on its website.
Cantor settled the case without admitting or denying wrongdoing. The NYSE document identified Goldman only by his former title as CEO of debt capital markets at Cantor, and he wasn’t directly accused by the watchdog of misconduct. People with knowledge of his dismissal spoke on condition of anonymity because the reasons for his departure were private.
Kristin Lemkau, a spokeswoman for JPMorgan, declined to comment on Goldman’s actions at Cantor or the bank’s decision to put him in charge of risk management. Goldman didn’t respond to messages seeking comment.
JPMorgan is investigating whether anyone at the firm sought to hide trading risks, people familiar with the matter have said. It hasn’t found that Goldman did anything improper, one person said.
Goldman’s resume lists more than a decade of work in trading and investments before he was appointed to be risk chief. He spent 13 years at Credit Suisse First Boston and ran sales and trading for interest-rate products, according to a 2003 statement on Cantor’s website.
That year, he joined Cantor as president of debt capital markets and asset management as the firm sought to rebuild from the Sept. 11 terrorist attacks on the World Trade Center, which killed 658 of its 960 New York-based employees.
After leaving Cantor, he joined JPMorgan’s chief investment office as a trader, according to two people. As the NYSE inquiry at Cantor progressed, he went on administrative leave at JPMorgan, one person said. His trading book was down around that time and his departure helped result in a loss of about $10 million to $15 million, the person said. The Wall Street Journal reported that loss yesterday on its website.
Ina Drew, then head of JPMorgan’s chief investment office, reenlisted Goldman to help with strategy at her unit after Cantor settled the NYSE’s inquiry in 2010, according to two people. He was head of risk strategy before his appointment in February, when the company’s main risk officer, John Hogan, named Goldman the unit’s head of risk, one of the people said. While others at the bank knew about Goldman’s firing from Cantor, Hogan wasn’t aware when he appointed him to the job, the person said.
Drew retired four days after Dimon announced the CIO loss on May 10. For years, Dimon had sought to transform the unit and increase the size of its speculative bets, former employees have said. The firm hired Achilles Macris, 50, in 2006 to oversee trading in London and lead an expansion into corporate and mortgage-debt investments with a mandate to generate profits, three former employees have said. One London trader, Bruno Iksil, amassed positions so big he began driving price moves in the $10 trillion market for derivatives linked to the financial health of corporations, Bloomberg News reported on April 5.
On April 13, Dimon called news about the London trades a “complete tempest in a teapot.” As the positions fueled losses in the following days, Hogan removed Goldman from much of his duties, one of the people said.
The Justice Department and the Federal Bureau of Investigation in New York have begun a criminal probe of the trading loss, a person familiar with the matter has said. The Securities and Exchange Commission is reviewing the transactions and the Commodity Futures Trading Commission voted May 18 to open an investigation, according to two people briefed on the matter. The U.K. Financial Services Authority, which regulates banks, is examining the role played by employees in London, where the trading occurred, people familiar with the talks have said.
NYSE investigators focused on Goldman’s trading in shares of Forbes Medi-Tech Inc. and Immunicon Corp. In October 2005, he bought Forbes Medi-Tech, a Vancouver-based biotech firm, for his retirement account, a joint account with his wife and trust accounts for his two children, according to Cantor’s settlement. Goldman also started buying the shares for a Cantor proprietary account in January 2006, accumulating more than 3.4 million by March 2 of that year, the document shows.
‘Dozens’ of Orders
In December 2006 the biotech company announced disappointing results for a clinical trial of its cholesterol- reducing drug, prompting the shares to drop. Goldman sold the stake in the proprietary account over the next several days, continuing to trade in personal accounts for another nine months.
He accumulated more than 2 million shares of Immunicon, a Huntingdon Valley, Pennsylvania-based maker of cancer diagnostic tests, for Cantor in 2006, while buying as many as 367,000 shares for his personal account, according to the NYSE. On some days, Goldman placed “dozens of buy and sell orders,” often “within minutes of each other,” according to the settlement document. Immunicon filed for bankruptcy protection in June 2008, agreeing to sell most of its assets to a unit of Johnson & Johnson, the New Brunswick, New Jersey-based maker of health- care products.
The NYSE found that Cantor failed to monitor Goldman’s personal bets. The firm’s own policies also barred traders from making personal wagers on the same stocks they bought for proprietary accounts, and it required them to hold their personal investments for at least 10 days, the settlement shows.