* Incidents at Goldman made superiors question
* CME probing Hadden's 2008 Treasury trades
* Hadden's lawyer says trader didn't manipulate market
By Lauren Tara LaCapra and Emily Flitter
Dec 3 Morgan Stanley hired former Goldman Sachs
trader Edward Glenn Hadden to run its Treasury bond desk last
year, even though his former employer had placed the trader on
paid leave for about a year following an internal inquiry, said
three people familiar with the situation.
The inquiry by Goldman involved a matter separate from an
ongoing investigation by exchange operator CME Group into a
December 2008 trade that involved U.S. Treasury futures.
Neither Hadden nor Goldman has been accused of wrongdoing in
the 2008 trading incident. But the decision by Morgan Stanley to
hire Hadden even though some of his activities had raised
questions within Goldman could put the firm in an uncomfortable
position in light of the revelations of the CME Group
Hadden was a partner at Goldman Sachs when the 2008 trade
drawing scrutiny occurred. The incident that led to the Goldman
internal inquiry took place the end of 2009 and involved profits
Hadden is said to have made ahead of the launch of a new
Treasury futures contract introduced by the CME Group in early
Morgan Stanley and Goldman Sachs both recently learned of
the CME investigation into the 2008 incident. But sources said
Morgan Stanley was aware Goldman had put Hadden on paid leave
when it hired him in March 2011.
Hadden's lawyer said his client did nothing wrong with the
2008 trade and expects the CME to reach a similar conclusion
when it completes its investigation.
"There is no legal or factual basis for any suggestion of
market manipulation," said James Benjamin, who defended his
client in response to a recent regulatory disclosure by the firm
that Hadden is being investigated by CME over a 4-year-old
Benjamin had no comment about the incident that led to
Goldman putting Hadden on paid leave that effectively barred him
from trading at the firm for about a year.
Hadden, who goes by his middle name "Glenn," officially left
Goldman in late 2010. A few months later, Hadden, who had
been a partner at Goldman, joined Morgan Stanley with much
fanfare to run the Wall Street firm's Treasury bond and interest
rate derivatives trading desk.
Hadden is one of the most successful traders in the market
for Treasury bonds and interest rate derivatives, whose value
stands at $531.6 trillion, according to the Securities Industry
and Financial Markets Association. He had worked for Goldman
Sachs for about 11 years before voluntarily leaving the firm at
the end of 2010.
Trading in Treasuries and interest rate derivatives is an
important part of Morgan Stanley's bond trading business, as it
focuses on high-volume trading that can be easily automated and
cleared under new regulations, rather than riskier and more
complex over-the-counter trades.
Benjamin, a defense attorney with Akin Gump, said the CME
investigation involves a "technical risk management activity"
that occurred "in a one-minute period four years ago." While
Benjamin declined to discuss the specifics of the allegation
against Hadden in his statement, the lawyer said his client had
"acted properly and followed established market practice."
CME Group declined to comment.
Morgan Stanley spokesman Mark Lake said Hadden is still
employed by the firm, and in good standing.
News of the investigation broke on Sunday evening when The
New York Times posted a story on its website about Hadden with
the headline "Morgan Stanley Trader Faces Inquiry on Possible
The paper, citing a regulatory filing and sources familiar
with the matter, said the CME was investigating Hadden over
whether his Treasury futures trading had manipulated prices.
Hadden's file with the Financial Industry Regulatory
Authority cites a pending CME investigation of his Treasury
futures orders placed on the expiration date in December 2008.
The trades being probed by the CME pertained to programs set
up by the Federal Reserve during the height of the financial
crisis to help support Wall Street and the banking system, a
person familiar with the matter said.
The New York Times reported that some at the Fed had
suspected that Goldman was trying to improperly profit from one
of the government's bond-buying programs, and complained to
Goldman about Hadden.
The 2009 incident that led to the Goldman internal inquiry
also involved Treasury futures but had nothing to do with the
U.S. government's efforts to prop up the financial system.
Instead, the 2009 matter involved a new Treasury futures
trading product the CME was developing and one which Hadden had
advised on, said those people, who were not authorized to speak
publicly on the matter.
Hadden had found a way to structure a Treasury trade ahead
of the CME's official announcement in September 2009 that it was
going to launch in early 2010.
That incident moved his superiors at Goldman to put him on
leave, keeping him on the payroll but preventing him from
actively trading for about a year.
Indeed, even as the CME investigates Hadden over the 2008
incident, its product development team has continued to turn to
him for help in devising new Treasury futures products. CME
Group quoted Hadden in a Sept. 18 press release highlighting a
new interest rate swap futures product.