Ex-Goldman Trader Taylor Pleads Guilty To Wire Fraud

by
Ex-Goldman Sachs Group Inc trader Matthew M. Taylor pleaded guilty on Wednesday to defrauding the Wall Street bank with an unauthorized $8.3 billion futures trade in 2007, saying he exceeded internal risk limits and lied to supervisors to cover up his activities.

Ex-Goldman Trader Taylor Pleads Guilty To Wire Fraud

Ex-Goldman Sachs Group Inc trader Matthew M. Taylor pleaded guilty on Wednesday to defrauding the Wall Street bank with an unauthorized $8.3 billion futures trade in 2007, saying he exceeded internal risk limits and lied to supervisors to cover up his activities.

Taylor, 34, pleaded guilty to one count of wire fraud in federal court in lower Manhattan on Wednesday morning, after voluntarily turning himself into federal authorities earlier in the day.

The Massachusetts Institute of Technology pleaded guilty about four months after the Commodities Futures Trading Commission filed a civil complaint accusing him of fabricating trades to conceal an $8.3 billion position in e-mini Standard & Poor's futures contracts, which bet on the direction of the S&P 500 index.

Taylor on Wednesday told U.S. District Judge William Pauley that his trading position at Goldman exceeded risk guidelines set by his supervisors "on the order of 10 times." He also admitted to making false statements to Goldman personnel who questioned him about the position.

"I am truly sorry," said Taylor, who joined Goldman in 2005.

Taylor was fired from Goldman in December 2007 shortly after the incident, which resulted in a $118 million loss for the Wall Street bank, according to brokerage industry records. He then took a job at Morgan Stanley, where he had first worked after graduating from MIT, before leaving that firm last summer.

A person familiar with Goldman's equities trading business said that Taylor's trading position was significant - representing roughly 20 percent of e-mini trading volume the day it was established. The market moved against Taylor's position, leading to the loss, said the person, who declined to be named.

For perspective, the $8.3 billion position Taylor took in the e-mini futures market was twice the size of the $4.1 billion trade the U.S. Securities and Exchange Commission highlighted in a report on the causes of the May 6, 2010, "flash crash" in which a series of e-Mini trades caused the Dow Jones Industrial Average to plunge 700 points in a matter of minutes.

Taylor said he knew his actions were wrong and illegal but established the trade anyway to augment his reputation and compensation. His salary was $150,000 and he expected a $1.6 million bonus.

Taylor posted a $750,000 bond with two co-signers. His sentencing hearing is set for July 26.

Taylor's activities first came to public light in November when the CFTC sued him.

In dismissing Taylor, Goldman noted he was fired for taking an "inappropriately large proprietary futures positions in a firm trading account," according to a filing with the Financial Industry Regulatory Authority.

But three months later, Taylor was hired by Morgan Stanley as an equity derivatives trader.

Taylor, whose criminal sentencing is set for July 26, faces a maximum of 20 years in prison.

Goldman paid $1.5 million last year to settle charges with the CFTC that it had failed to appropriately supervise Taylor.

The bank has since put in place procedures to catch wayward trading activity more quickly.

"We are very disappointed by Mr. Taylor's unauthorized conduct and betrayal of the firm's trust in him," the bank said in a statement on Wednesday.

A spokesman for Morgan Stanley declined to comment on Taylor's guilty plea.

Last year, a Morgan Stanley spokesman said he left the firm unrelated to the charges against him.

Taylor's lawyer, Thomas Rotko, said his client accepted responsibility for his actions, which he called "an aberration."

"He looks forward to the opportunity to put this behind him and resume what has otherwise been a productive and exemplary life," Rotko said.

View Comments

Recommended For You