November 14, 2024

DealBook: Goldman to Pay $1.5 Million for Failing to Supervise Trader

Goldman Sachs's headquarters in Manhattan.Mark Lennihan/Associated PressGoldman Sachs’s headquarters in Manhattan.

Goldman Sachs has agreed to pay $1.5 million to settle federal accusations that it failed to supervise a trader who fabricated “huge” positions at the bank, a modest deal that divided the government regulators who brought the case.

The Commodity Futures Trading Commission, which voted 3 to 1 in favor of the fine, took action against Goldman over trades stemming from late 2007.

At the time, Matthew Marshall Taylor, then a trader at the Wall Street firm, was accused of entering fabricated trades that concealed a $8.3 billion position. The trading resulted in nearly $119 million in losses for Goldman.

The Wall Street firm, the commission said on Friday, “failed to have policies or procedures reasonably designed to detect and prevent” improper trades.

The agency further claimed that Goldman did not keep a close enough eye on Mr. Taylor.

The bank, in striking the settlement deal, agreed to improve its compliance systems.

But the fine, a token sum for a firm the size of Goldman, caused a stir among the agency’s commissioners.

Bart Chilton, a Democratic commissioner at the agency, supported the regulatory sanctions but declined to endorse a fine that he cast as too low.

“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 in order to represent a sufficient punishment, as well as to denote a meaningful deterrent to future illegal activity,” Mr. Chilton said in a dissenting opinion.

“I do not believe” that the $1.5 million penalty “is anywhere close to an amount representing a sufficient penalty or deterrent.”

The agency’s two Republicans — Jill E. Sommers and Scott D. O’Malia — voted in favor of the fine. So did Mark Wetjen, another Democratic commissioner.

Gary Gensler, the agency’s chairman, was recused from the case because he had spent nearly two decades at Goldman as a banker and later an executive.

In challenging the penalty, Mr. Chilton cited an agency rule that allows it to assess $130,000 in fines for each violation. In the case of Goldman, the agency pinpointed 60 violations, which could have prompted a fine of $7.8 million, a sum that Mr. Chilton called “more appropriate.”

His dissent called to mind broader questions about the government’s use of enforcement muscle on Wall Street. The trading commission this year levied a major $200 million fine against Barclays for manipulating interest rates, the first of several expected sanctions against big banks.

But public frustration has run high with the larger struggle to charge Wall Street executives involved in the financial crisis.

Federal judges also have balked at fines the Securities and Exchange Commission has assessed against big banks like Citigroup, questioning whether the firms received a free pass.

Unlike the crisis, however, the trading commission’s case against Goldman was limited. The agency saved its most significant accusations for Mr. Taylor. “Taylor admitted his conduct following market close and was subsequently terminated,” the bank said in a statement.

“Since these events, we have enhanced our controls,” Goldman said, adding that the trades had no impact on customer money.

In a separate enforcement action last month, the trading commission accused Mr. Taylor of defrauding his employer. Mr. Taylor, the agency said, bypassed Goldman’s internal controls and manually entered his “fabricated” futures trades so they did not register on the radar screen of the CME Group, the giant exchange.

That case is still pending. His lawyer, Ross B. Intelisano of Rich, Intelisano Katz, declined to comment on Friday. Previously, he has said that his client denies all the allegations.

Despite the stain on his record, Mr. Taylor was hired by Morgan Stanley. He has since left the firm.

He is not the only Goldman trader to end up at Morgan Stanley that has recently run into trouble with regulators.

In recent weeks, regulators at the CME, which runs commodity and futures exchanges, said in a regulatory filing that they are investigating Glenn Hadden and his trading activity in Treasury futures in 2008 while he was at Goldman. Mr. Hadden, a former Goldman partner, was hired as the head of global rates at Morgan Stanley in early 2011.

A lawyer for Mr. Hadden declined to comment. In a previous statement, he said his client acted properly and followed established market practice.

A version of this article appeared in print on 12/08/2012, on page B3 of the NewYork edition with the headline: Goldman Fined Over Improper Trading.

Article source: http://dealbook.nytimes.com/2012/12/07/goldman-to-pay-1-5-million-for-failing-to-supervise-trader/?partner=rss&emc=rss

Euro Zone Members Agree to Reinforce Original Treaty Rules

The central aim of the deal is to make it harder for the 17 members of the bloc that use the euro to ignore stringent rules that they had pledged to follow long ago. And to make that outcome more likely this time, the accord creates a center of coordination and decision-making in Europe.

All 17 members of the European Union that use the euro, plus 6 other members — Denmark, Latvia, Lithuania, Poland, Romania and Bulgaria — agreed to subscribe to a new treaty, which binds them more closely, enforces more fiscal discipline and makes it harder to break the rules. Britain rejected the plan, while Hungary, Sweden and the Czech Republic left the door open to sign up.

At the heart of the accord are the fiscal requirements that were laid down in the treaty that led to the creation of the euro as a common currency 20 years ago; it called for the euro zone countries to limit budget deficits to no more than 3 percent of gross domestic product and to restrain overall debt so that it remains below 60 percent of annual economic output. Originally, there were sanctions for exceeding these limits, but when Germany and France found themselves doing so the idea of punishments was scrapped.

Once the European Commission, the bloc’s executive body, suggests sanctions for violating the rules, a country will need a weighted majority of nations to prevent them from being enforced. The new mechanism will make it more difficult for countries to avoid punishment.

The provision limiting a nation’s total debt, which had not been taken seriously, will be applied more forcefully, requiring nations to gradually reduce their level of cumulative debt.

Euro zone nations will also have to submit drafts of their national budgets to the European Commission, which will be able to request revisions if it thinks a budget could lead a country to break the euro zone’s rules.

The accord also contains other changes: Governments will have to inform one another about how much debt they want to issue in bonds, and limitations on debt are to be written into national laws or constitutions.

Should countries deviate from the debt limits, an “automatic correction mechanism” will kick in; this is to be designed by each nation in line with principles identified by the European Commission. The European Court of Justice will make sure all nations effectively include debt restrictions in their laws.

“We are committed to working towards a common economic policy,” the nations said in a statement. For all of the accord’s intricacies, skeptics immediately saw potential flaws. Additional aid for euro zone countries that are struggling with unsustainable levels of debt would, at best, buy time for the bloc to create a system that satisfies German demands for budgetary discipline, said Clemens Fuest, a professor at Oxford who has advised the German Finance Ministry.

He estimated that the additional support would provide relief “for perhaps half a year or a year. That is probably the most optimistic scenario.”

Eventually, Mr. Fuest said, the European Central Bank will be forced to relent and become the lender of last resort for nations like Greece, Italy and others members with high debt. The bank’s president, Mario Draghi, has been resisting that role.

Simon Tilford, chief economist at the Center for European Reform in London, says the agreement in Brussels is superficial and fails to address the underlying problems. “It’s little more than a stability pact with lipstick,” Mr. Tilford said.

“It’s hard-wired austerity into the framework of the European Union,” he added. “That’s not going to do anything to solve the crisis.”

But Stefan Schneider, the chief international economist at Deutsche Bank in Frankfurt, said that expectations for a grand solution at the meeting here had been too high. “You can’t make a quantum leap to a fiscal union in one weekend,” he said.

Article source: http://www.nytimes.com/2011/12/10/world/europe/euro-zone-agrees-to-reinforce-maastricht-rules.html?partner=rss&emc=rss

Euro Zone Leaders Weigh New Budget Rules

Investors clearly are not persuaded by the intermittent efforts that Europe has made to protect major countries like Italy and Spain from the crisis, which started in smaller, more fragile economies like those of Greece and Ireland. The leaders of Germany, the mainstay of the euro zone, want a new treaty that would stop euro nations from posing a threat by running large deficits or amassing crushing debts, but France, the zone’s second-largest economy, believes that amending treaties would take too long to help now.

France, Germany and Italy are ready to agree on new rules and encourage more coordination of economic and fiscal policy, the French budget minister and government spokesman, Valérie Pécresse, said Sunday.

The idea would be “a governance with real regulators and real sanctions, that would give real confidence,” she told the television channel Canal Plus. “Germany, France and Italy want to be the motor of a Europe that is much more integrated, much more solid and with regulatory mechanisms that are virtuous, that don’t allow a cheater, so that there is no one who can exempt themselves from the rules that are set.”

When members make a complete commitment to the new rules, Ms. Pécresse added, “then European institutions will be able to play their full role,” including the central bank. The agreement would include as many as possible of the 17 European Union nations that use the euro, she said.

Still, it is unclear whether such an agreement would persuade the markets that the European Union, the central bank and fellow euro zone nations stand fully behind Italy and Spain, which both have new governments striving for austerity and structural reform. Meanwhile, signs are accumulating that the crisis is continuing to spread, including a weak German bond sale on Wednesday and a contraction in interbank lending in Europe.

Chancellor Angela Merkel of Germany has firmly opposed two ideas for solving the crisis: an expanded role for the central bank and new bonds to be issued jointly by the euro zone countries, known as eurobonds. But Germany has become increasingly isolated in its stand on the bank, as fellow deficit-hawk nations have wavered. The Finnish finance minister, Jutta Urpilainen, told reporters in Berlin on Friday that “if there is nothing else left, then we can think about strengthening the role of the E.C.B,” and the chancellor of Austria, Werner Faymann, told the APA news agency on Saturday that the bank could play “a stronger role.”

France agrees with Germany that eurobonds are a bad idea now, because they would put too much burden on the euro zone countries whose credit remains sound, though they may make sense once new budget strictures are in place and members are coordinating their policies more tightly. But the government of President Nicolas Sarkozy is frustrated with Mrs. Merkel’s refusal to allow the supposedly independent central bank to act as a lender of last resort, to lend to the new European bailout fund or to intervene more forcefully to hold down sovereign bond rates.

Bypassing the European Union treaty process may bring an outcry from European Union members like Britain that do not use the euro and that have warned against widening the gap between countries inside and outside the currency union. And there are worries that the euro zone itself will divide into a German-led fiscal-rectitude bloc and everyone else. A headline in the German newspaper Welt am Sonntag declared: “Merkel and Sarkozy Found a Club of Super-Europeans,” after what they described as secret talks over bilateral deals.

“There are no secret German-French negotiations,” a German government official said Sunday. “There is the previously announced, intense cooperation between Germany and France on proposals for limited treaty changes as the necessary political answer to the debt crisis.”

Though to some degree they go against the principles of solidarity and consensus in the 27-nation European Union, intergovernmental agreements among some but not all members have always been an option. A precedent is the Schengen agreement, allowing visa-free travel; it now covers 22 of the 27 members of the union and three nonmember nations.

Germany believes that the long-term answer to the crisis is to create “more Europe” and more federalism. That may mean setting up a common treasury and finance ministry for the euro nations, central intervention into national budgets, and more uniform pension and tax policies. Such a transformation would require a new treaty, which would take at least three years to draft and ratify, most analysts agree.

An intergovernmental agreement among the main countries of the euro zone could be reached much faster, and unlike a treaty, would not involve holding any national referendums.

Article source: http://feeds.nytimes.com/click.phdo?i=b9b94d084abfe7a121dc5e274379db51

Oil Prices Ease as Libyan Rebels Plan to Resume Production

Over the last two days, the rebels have seized several towns with important oil installations that they said would enable them to produce and export crude. The rebels said they would able to produce up to 130,000 barrels of crude a day, still less than a tenth of what Libya exported before turmoil erupted last month.

While the amount of oil the rebels said they could export was small, Libyan oil is particularly valued on world markets because it is high quality, needs little refining and is particularly well suited for European diesel markets. Although there is concern that the rebel advance may prove to be fleeting, oil traders responded to their victories by pushing down the price of most world oil benchmarks, albeit modestly.

In early trading in New York, the price of light sweet crude was down $1.64 a barrel to $103.76. As the morning progressed, prices began to drift higher, and by afternoon had reached $104.61, still a decline of 79 cents. The price is 8 percent higher than it was a month ago, and 30 percent higher than a year ago, threatening the global economic recovery.

President Obama planned to address the nation Monday night regarding the United States involvement in Libya. The administration has been accused of failing to make its goals clear with regard to the action in Libya.

Some oil analysts expressed doubts the Libyan advance would make a lasting impact. Tanker companies will need to find ways to obtain insurance before they will venture into Libyan ports, analysts noted, and the rebels’ ability to retain control over oil terminals may be tested.

“With military action continuing and sanctions very much in place, it will be hard to move oil out of the country,” Barclays Capital reported in a research note. “There isn’t much clarity as to how many of the actual oil fields are under the control of the rebels.”

Nevertheless, it was the third day in a row that oil prices fell as the rebels’ fortunes improved. Another cause for the drop in oil prices is the strengthening of the dollar, which normally makes the commodity more expensive to buy in other currencies.

Article source: http://www.nytimes.com/2011/03/29/business/global/29oil.html?partner=rss&emc=rss