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Morgan Stanley Trader Faces Inquiry on Possible Manipulation

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On paper, Glenn Hadden seemed to be the ideal person to run a large bond trading operation at Morgan Stanley when he was hired in early 2011. Mr. Hadden, a former Goldman partner, was one of the most profitable bond traders on Wall Street.

But there was more to his story than just stellar financial results. He had left his previous employer, Goldman Sachs, after questions about his trading activity. And now, Mr. Hadden is under investigation over his trading in Treasury futures while at Goldman, according to a regulatory filing.

Specifically, regulators at the CME Group, which runs commodity and futures exchanges, are investigating whether Mr. Hadden's purchases or sales of Treasury futures late in the trading day manipulated closing prices in the market and, in turn, made other of his trades more profitable, according to people briefed on the matter who were not authorized to speak publicly.

Mr. Hadden, who is now the head of the global interest rates desk at Morgan Stanley, has been given formal notice by the CME that an inquiry is under way, meaning that it is at an advanced stage.

Through a Morgan Stanley spokesman, Mr. Hadden, 42, declined to comment. Goldman Sachs also declined to comment, and Morgan Stanley would say only that Mr. Hadden continues to work at the firm as head of global rates.

Mr. Hadden is one of the highest paid professionals at Morgan Stanley and has been known throughout his career for aggressive and profitable risk taking. It is unusual for someone of Mr. Hadden's stature to be the target of a civil complaint like this, and if he is found to have violated exchange rules, he could, in the extreme, face millions in fines and be barred from trading on the CME Group.

While Morgan Stanley and Goldman Sachs learned about the investigation only in recent months, both firms were aware of another controversy involving Mr. Hadden that took place not long after the CME trading now under scrutiny.

After receiving complaints involving Mr. Hadden from the Federal Reserve Bank of New York, Goldman Sachs took the extraordinary step of putting him on paid leave in 2009, according to several people briefed on the matter.

Goldman is one of 21 firms designated to trade United States government securities with the New York Fed. Traders at the Fed,according to people briefed on the matter, suspected that Goldman was trying to improperly profit from one of the federal government's bond-buying programs,which are aimed at stimulating economic growth. A spokesman for the New York Fed declined to comment.

While neither Goldman nor Mr. Hadden was accused by regulators of wrongdoing in that case, Mr. Hadden's leave from Goldman dragged on for months, in part because senior managers were divided on whether he should return to work, and whether he should have managerial responsibilities if he did return, according to people involved in the discussions.

In November 2010, Goldman told its employees that Mr.Hadden was leaving the firm. Morgan Stanley snapped him up soon afterward.Several senior executives there were aware of the New York Fed's complaints when Mr. Hadden was hired, but they were satisfied that he had not done anything wrong, according to people involved in the decision to hire him.

"Wall Street is always looking for a proven moneymaker and has been known to look the other way on things in pursuit of that," said Michael Driscoll, a former senior trader at the Wall Street firm Bear Stearns who now teaches at Adelphi University.

Mr. Hadden joined Goldman in 1999, just months before the firm went public, and rose to become one of the bank's top traders. In 2008 he was made a partner, a title typically reserved for executives known inside Goldman as "commercial killers" - people who make an outsize financial contribution to the firm. Current and former colleagues said Mr. Hadden, who has been known to drink copious amounts of Gatorade at work, was almost "machine like" when he traded. "He gets this look in his eye," one former colleague said. "It is scary."

His trading made him very wealthy. His exact compensation is not known but rival rates traders and head hunters estimate that in his best years he made more than $10 million.

Mr. Hadden was just the sort of swing-for-the-fences trader Morgan Stanley needed in late 2010, when it was working to rehabilitate its fixed income, or bond, department. That unit, where Mr. Hadden now works,was badly bruised during the financial crisis. Since then, its efforts to rebuild have been slowed by ratings cuts and new regulations that require it and its rivals to hold more capital against riskier operations. These rules are forcing Morgan to either scale back or get out of certain business lines altogether.

Trading interest rates, which fall under the bond department, however, is less capital intensive, so in recent years, Morgan Stanley has made a big push into this corner of Wall Street. Enter Mr. Hadden.

He has continued to deliver profits to Morgan Stanley,but his time there has not been without incident. In 2011, Mr. Hadden's division was burned by a bad wager on United States inflation expectations,resulting in a loss of tens of millions of dollars, according to people briefed on the trade. Since then, Morgan executives have increased their supervision of Mr. Hadden's activities, according to several people briefed on the matter.

A lot is riding on Mr. Hadden at Morgan, however. Not only does he run the firm's powerful rates desk, but many of his bosses -including Colm Kelleher, co-president of institutional securities, and Kenneth M. de Regt, global head of fixed income sales and trading - had a role in hiring him.

Morgan Stanley reported the investigation to the Financial Industry Regulatory Authority, Wall Street's self-regulator, on Nov.19, according to a person briefed on the matter.

Mr. Hadden got his start in finance in Canada. He was raised in Ontario and attended the University of Western Ontario, where he played football. He worked on Bay Street, which is Toronto's financial district, and eventually landed a job there with Goldman. He also worked for Goldman in London and New York.

He has not forgotten his Canadian roots. He is a big supporter of the Toronto Argonauts football team, and he held a charity-driven party in Toronto connected to the recent centennial Grey Cup.

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