Matthew Marshall Taylor, a former trader at Goldman, Sachs & Co., was at the center of a trading scheme that cost his firm over $118 million in losses, according to a settlement announced by the U.S. Commodity Futures Trading Commission (CFTC) on December 7, 2012.
The CFTC ordered Goldman, Sachs & Co. to pay a $1.5 million civil monetary penalty for failing to diligently supervise its employees, specifically Taylor, during a period in late 2007. The firm also agreed to cease and desist from violating CFTC regulations regarding diligent supervision.
The investigation revealed that for several months, Goldman did not maintain adequate risk management, compliance, and supervision programs. Between November and December 2007, Taylor exploited weaknesses in these systems to manipulate the market. He entered fabricated e-mini S&P 500 sell trades into Goldman’s manual trading system to camouflage corresponding buy trades he executed on the Chicago Mercantile Exchange’s (CME) Globex platform. This spoofing activity created an artificial offset, masking the true extent of his trading activity.
On December 13, 2007, Taylor amassed an $8.3 billion e-mini S&P 500 position in a Goldman trading account. When the firm unwound the position, it incurred losses exceeding $118 million. The CFTC found that Goldman failed to implement policies and procedures to detect and prevent such fabricated trades.
Following Taylor’s termination, Goldman initially provided limited information to regulators. While the firm notified the CME and FINRA about accusations of violating investment-related standards, it only shared the details regarding Taylor’s use of fabricated trades with FINRA, withholding this crucial information from the National Futures Association (NFA) and the CFTC until the agency initiated its own investigation.
Goldman has since stated it has implemented written enhancements to its U.S. futures-related trading and risk management controls, as well as improved supervision policies and procedures. The firm also pledged to enhance its process for providing information to the NFA and CFTC regarding misconduct by former employees.
Source: CFTC.gov
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