Mark Lennihan/Associated PressThe headquarters of Goldman Sachs in Manhattan.
7:08 p.m. | Updated A former Goldman Sachs trader suspected of fabricating huge positions pleaded guilty to criminal actions on Wednesday, escalating a case that until now had led only to civil charges.
Matthew M. Taylor, whose trading caused unexpected losses for Goldman, pleaded guilty to one count of wire fraud at a court hearing in Lower Manhattan. Mr. Taylor, who more recently worked for Morgan Stanley, admitted to entering fabricated trades that concealed an $8.3 billion position to protect his bonus.
“I am truly sorry,” Mr. Taylor, 34, a Florida resident, told a federal judge on Wednesday. He had surrendered to the F.B.I. earlier Wednesday morning and was released on $750,000 bond.
In a statement, his lawyer noted that Mr. Taylor “has accepted responsibility for his conduct today.” The lawyer, Thomas C. Rotko, called “the unfortunate events” at Goldman “an aberration,” adding that “he looks forward to the opportunity to put this behind him and resume what has otherwise been a productive and exemplary life.”
While the charge could carry as much as a 20-year prison term, Mr. Taylor signed a plea agreement that suggests a lighter punishment, in the range of 33 to 41 months. Still, Judge William H. Pauley III, who questioned on Wednesday whether prosecutors should have adopted a more aggressive stance, has discretion to set the penalty. Mr. Taylor’s sentencing is set for July 26.
The guilty plea came as a surprise development in a case that seemed limited to regulatory actions. Last year, the Commodity Futures Trading Commission accused Mr. Taylor of defrauding Goldman and sanctioned the bank for failing to supervise him. In December, Goldman paid $1.5 million to settle the case.
At the time, Goldman noted that the trades did not affect customer money. “Since these events, we have enhanced our controls,” the bank said, adding that “Taylor admitted his conduct following market close and was subsequently terminated.”
The problem arose in late 2007, as Mr. Taylor was riding out a rough patch in the markets. Mr. Taylor, who traded equity derivatives products in New York, had erased his trading gains for the year. And his bosses, threatening to slash his $1.6 million bonus, ordered him to whittle down the risk on his trading book.
But Mr. Taylor, prosecutors said, ratcheted up the position. Mr. Taylor soon blew through risk limits the bank set not only for him but also for his entire 10-person trading desk.
To conceal the size of the position, he entered “multiple false entries” into a Goldman trading system, booking trades that he never actually made. The bogus trades gave the false impression that his portfolio was well balanced.
Mr. Taylor, authorities said, manually entered his trades so they did not register on the radar screen of the CME Group, the giant commodities exchange. The trading prompted about $120 million in losses for Goldman.
“Taylor has admitted he actively circumvented internal controls at Goldman Sachs for his own benefit, exposing the firm to substantial risk in the process,” said George Venizelos, the F.B.I. assistant director in charge of the New York field office.
Despite the stain on his record, Mr. Taylor was hired by Morgan Stanley in 2008. He has since left the firm.
Article source: http://dealbook.nytimes.com/2013/04/03/former-goldman-trader-surrenders-to-f-b-i/?partner=rss&emc=rss