A former Goldman Sachs trader who pleaded guilty to fraudulently building an unauthorized $8.3 billion futures trade should repay $118 million to his former employer to cover its losses and spend about three years in prison, federal prosecutors said.
In a Monday night filing in the U.S. District Court in Manhattan, prosecutors said Matthew Taylor deserves a 33- to 41-month prison term that reflects his "blatant abuse" of the trust placed in him by Goldman, which once considered him a "rising star," and to deter other "rogue traders."
Investigators said the Massachusetts Institute of Technology graduate fabricated trades and lied to supervisors to conceal an $8.3 billion bet on Standard & Poor's 500 e-mini futures contracts, which bet on the direction of that index, over a two-day period in December 2007.
"The defendant took these steps out of both greed and hubris, to improve the bottom line of his bank account and to rehabilitate his suffering professional reputation," U.S. Attorney Preet Bharara said in the filing.
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Prosecutors said Goldman discovered the scheme on Dec. 14, 2007, and spent about $118 million to unwind the position.
Although the defendant's plea agreement estimated a loss of $1 million to $2.5 million, prosecutors said restitution could be greater, and that Goldman deserves to have its request to recover all it lost fulfilled.
"Here, Goldman Sachs is a victim," Bharara said. "Ordering restitution to Goldman Sachs for the cost of unwinding the defendant's position would make Goldman Sachs whole."
In a Nov. 22 court filing, lawyers for Taylor said the married father of two, who turns 35 on New Year's Day and has no prior criminal record, should spend no time in prison.
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They said Taylor's conduct was the "plainly aberrant" act of a then 28-year-old trader under "overwhelming" pressure at Goldman to succeed, and that the risk of his committing similar conduct again is nonexistent.
"However misguided, his intentions were never to harm Goldman," Thomas Rotko, a partner at Clayman & Rosenberg, wrote, referring to Taylor. "He makes no excuses for his conduct and accepts full responsibility for his actions."
Taylor's capacity to make restitution to Goldman was not immediately clear. He was previously civilly fined $500,000 by the U.S. Commodity Futures Trading Commission over his trading. Goldman paid a $1.5 million civil fine last December to settle CFTC charges that it failed to appropriately supervise Taylor.
Rotko declined to comment on the government filing. Bharara's office did not immediately respond to a request for comment. A Goldman spokesman had no immediate comment.
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The $8.3 billion position was double the size of a $4.1 billion trade that the U.S. Securities and Exchange Commission highlighted in a report on the May 6, 2010, "flash crash," where e-mini trades caused the Dow Jones industrial average to plunge 700 points in just a few minutes.