* Taylor built $8.3 bln e-mini position to boost bonus
* Taylor's position was 10 times authorized limit
* Judge: "He cooked Goldman's books"
By Lauren Tara LaCapra and Nate Raymond
NEW YORK, April 3 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 Massachusetts Institute of Technology graduate pleaded
guilty about four months after the Commodities Futures Trading
Commission filed a civil complaint against him. The CFTC accused
Taylor of fabricating trades to conceal a huge, unauthorized
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, which led to a $118 million
loss for Goldman Sachs.
"I am truly sorry," Taylor said.
'FAR EXCEEDED' RISK LIMITS
Taylor, who joined Goldman in 2005, worked in a 10-person
group called the Capital Structure Franchise Trading (CSFT), and
was responsible for equity derivatives trades.
After his trading profits plunged in late 2007, his
supervisors told Taylor his bonus was going to be cut and
instructed him to reduce risk-taking, the charging documents
Instead, 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," according
to charging documents.
Taylor attempted to hide his actions by putting false
information into a manual entry system, according to charging
documents filed in his case. When supervisors and other
employees confronted him about discrepancies compared with his
actual positions, Taylor repeatedly lied, the document said.
In court, Taylor said he covertly built the position in an
effort to restore his reputation and increase his bonus. He
earned a $150,000 salary and expected a bonus of $1.6 million,
according to court documents.
Taylor was fired from Goldman in December 2007, shortly
after the incident, according to brokerage industry records. He
then took a job at Morgan Stanley, where he had first
worked after graduating from MIT, but left that firm again last
Prosecutors are seeking a prison sentence of 33 months to 41
months and a fine of $7,500 to $75,000.
During the hearing, Pauley questioned how the government
came up with its proposed sentence, given the size of Goldman's
loss. Steve Lee, a prosecutor, said it was based on Taylor's
Pauley stressed the "court may not be bound by that
calculation" come sentencing, adding that he was "puzzled" by
"He cooked Goldman's books, and that's not sophisticated?"
A person familiar with Goldman's equities trading business
said 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
increase his compensation.
Taylor's bail includes 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.
The case is United States v. Taylor, U.S. District Court,
Southern District of New York, No. 13-cr-251.