United States Attorney
Southern District of New York
Thursday, April 4, 2013
Former Goldman Sachs Vice President Pleads Guilty in New York to Fraudulently Amassing and Concealing Trading Position
Matthew Taylor pleaded guilty today in New York federal court to wire fraud in connection with a scheme to accumulate and conceal an unauthorized trading position in an account that Taylor managed at Goldman, Sachs & Co., announced Preet Bharara, the U.S. Attorney for the Southern District of New York and George Venizelos, the Assistant Director-in-Charge of the New York Field Office of FBI. Taylor was formerly a vice president at Goldman Sachs and a trader on Goldman Sachs’s Capital Structure Franchise Trading (CSFT) desk. He pleaded guilty today before U.S. District Judge William H. Pauley III.
According to the information filed in New York federal court:
While employed at Goldman Sachs as a vice president, Taylor was a member of the CSFT desk and was responsible for a trading account called the CSFT Equity Volatility Portfolio (the Trading Account), which included trading in equity derivatives products. Among the products that Taylor traded on the CSFT desk were Standard & Poor’s E-mini futures contracts (S&P E-mini futures), which are futures contracts tied to the S&P 500 stock index. Taylor traded in S&P E-mini futures using an electronic trading platform called “Globex.”
In November 2007, Taylor had lost a significant portion of the profits that he had accumulated in the Trading Account earlier that year. As a result, he was instructed by his supervisors to reduce the overall risk in the Trading Account. These supervisors had also previously informed Taylor and other traders on the CSFT desk about risk limits for the CSFT desk and acceptable risk levels and trading limits.
Despite these instructions to reduce the risk in the Trading Account, on Dec. 13, 2007, Taylor significantly increased the notional value of his long position in S&P E-mini futures by entering a series of electronic trades through Globex. In so doing, he amassed a position that far exceeded all trading and risk limits set by Goldman Sachs, not only for individual traders, but for the entire CSFT desk. Taylor increased the profitability of the Trading Account in order to restore his professional reputation with Goldman Sachs and to increase his performance-based compensation.
At the same time that Taylor increased his S&P E-mini futures position, he actively concealed this position from others at Goldman Sachs. He recorded multiple false entries for S&P E-mini futures trades that he never made in a manual trade entry system (the Manual Trade Entry System), which was typically intended to be used by traders for recording trades that – unlike S&P E-mini futures – could not be executed through the Globex electronic trading platform. Taylor recorded multiple false trading entries in the Manual Trade Entry System that were in the opposite direction of the electronic trades he made in the Trading Account. Where Taylor purchased S&P E-mini futures in the Trading Account via Globex, he then manually entered fictitious S&P E-mini futures sales in the Manual Trade Entry System. The purpose of entering these fabricated trades was to conceal and understate the true size of the S&P E-mini futures position within the Trading Account, as the fictitious sales functioned to offset portions of Taylor’s actual purchases.
In addition, at the end of the trading day on December 13, 2007, Taylor prepared a false profit and loss report for the Trading Account (the December 13, 2007 P&L Report) that served to conceal his actual oversized position and market risk. He then forwarded the Dec. 13, 2007 P&L Report to his supervisors and others at Goldman Sachs. By the morning of Dec. 14, 2007, however, various employees at Goldman Sachs had detected a significant discrepancy between Taylor’s actual position in the Trading Account and what Taylor had falsely reported in the Dec. 13, 2007 P&L Report. In response to questioning from these employees, Taylor made various false statements about his position and risk in the Trading Account. His fraudulent scheme resulted in significant losses to Goldman Sachs.
Taylor, 34, of West Palm Beach, Fla., is charged with one count of wire fraud. This count carries a maximum sentence of 20 years in prison and a fine of the greater of $250,000 or twice the gross gain or loss from the offense. He is scheduled to be sentenced before Judge Pauley on July 26, 2013 at 11:30 a.m.
U.S. Attorney Bharara praised the investigative work of the FBI. He also thanked the U.S. Commodity Futures Trading Commission.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force, on which U.S. Attorney Bharara serves as a co-chair of the Securities and Commodities Fraud Working Group. The task force was established to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants. For more information on the task force, please visit www.stopfraud.gov.
The case is being handled by the Office’s Securities and Commodities Fraud Task Force. Assistant U.S. Attorney Steve Lee is in charge of the prosecution.