CFTC Orders Goldman Sachs to Pay $1.5 Million for Supervision Failures

   By Nathalie Tadena 
 

The U.S. Commodity Futures Trading Commission has ordered Goldman Sachs Group Inc. (GS) to pay $1.5 million to settle charges that the firm failed to diligently supervise its employees in late 2007.

According to the CFTC's order, Goldman failed to supervise the trading activities of Matthew Marshall Taylor, a former Goldman trader whose trading activities on seven days in mid-November and mid-December 2007 in the e-mini Standard & Poor's 500 futures contract traded on the Chicago Mercantile Exchange resulted in a loss of more than $118 million for Goldman.

The regulator said Goldman failed to have policies or procedures designed to detect and prevent the manual entry of fabricated futures trades into its front-office systems. Mr. Taylor in 2007 circumvented Goldman's risk management, compliance, and supervision systems by entering fabricated e-mini S&P 500 sell trades into its manual trading system, which artificially offset buy trades Mr. Taylor had executed in the market. Mr. Taylor established an $8.3 billion e-mini S&P 500 position in a Goldman trading account Dec. 13, 2007.

Goldman Sachs said Mr. Taylor's activity was flagged by its controls Dec. 14, with no impact to customer funds.

"After initially providing false explanations during the trading day, Taylor admitted his conduct following market close and was subsequently terminated," a Goldman Sachs spokesman said. "Since these events, we have enhanced our controls. We're pleased to have settled this matter."

In November, the CFTC charged Mr. Taylor with defrauding Goldman by intentionally concealing the true size associated with the S&P e-mini futures contracts he traded in the Goldman account.

Goldman shares were off by 71 cents at $116.49 in recent trading. The stock is up 29% year to date.

Write to Nathalie Tadena at [e-mail]

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