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Goldman Fined for Failing to Block Trader’s $8.3 Billion Bet

Goldman Fined for Failing to Block Trader’s $8.3 Billion Bet
Goldman Sachs Group Inc. inadequately policed trades made by Matthew Marshall Taylor on seven days in late 2007, ultimately suffering more than $118 million in losses as his bets were unwound, according to the CFTC. Photographer: Jin Lee/Bloomberg

Dec. 7 (Bloomberg) -- Goldman Sachs Group Inc. will pay $1.5 million to settle U.S. Commodity Futures Trading Commission claims the firm failed to supervise a trader who hid an $8.3 billion position. One CFTC commissioner dissented, saying the penalty is far too small.

Goldman Sachs inadequately policed trades made by Matthew Marshall Taylor on seven days in late 2007, ultimately suffering more than $118 million in losses as his bets were unwound, according to the CFTC. Later, Goldman Sachs didn’t send the regulator “important information” on the incident that was provided to another industry watchdog, the CFTC said.

“Given the egregious nature of the failure to supervise adequately, combined with the high number of violative transactions, I believe that the monetary penalty should be significantly higher,” Bart Chilton, one of three Democrats at the CFTC, wrote in a dissent posted on the regulator’s website. Fines should represent more than a “slap on the wrist,” he said.

Taylor concealed the position by bypassing the New York-based firm’s internal system for routing trades to the Chicago Mercantile Exchange and manually entering fabricated futures trades in a different internal system, the CFTC wrote in a complaint filed against him at federal court last month. His attorney disputed those allegations at the time.

In settling with the CFTC, Goldman promised to bolster internal systems and cooperate with claims against Taylor.

‘False Explanations’

“Taylor’s activity was flagged by our controls” in December of 2007, Goldman Sachs said in a statement. “After initially providing false explanations during the trading day, Taylor admitted his conduct following market close and was subsequently terminated. Since these events, we have enhanced our controls.”

Taylor’s attorney said last month the trader never intentionally used bogus transactions to hide positions and that the bank didn’t claim otherwise when he was terminated.

“Matt, himself, brought the trading losses to the attention of senior managers at Goldman on the day they occurred,” said the lawyer, Ross Intelisano of Rich, Intelisano & Katz LLP.

The case is U.S. Commodity Futures Trading Commission v. Taylor, 12-cv-8170, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Silla Brush in Washington at sbrush@bloomberg.net

To contact the editors responsible for this story: David Scheer at dscheer@bloomberg.net; Maura Reynolds at mreynolds34@bloomberg.net

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