Trader Cost Goldman|$118 Million, U.S. Says

MANHATTAN (CN) - A former vice president at Goldman Sachs lost $118.4 million for the bank through fabricated electronic futures contracts, the Commodity Futures Trading Commission claims in court.

The CFTCV claims in its federal complaint that Matthew Marshall Taylor executed the fraud in seven days: three days in November 2007 and four days that December.

The 23-page complaint identifies Taylor's employer as a "large Futures Commissions Merchant," or FCM, but it has been widely reported that he worked for Goldman Sachs at the time.

"Taylor intentionally concealed from his employer the size of the S&P 500 e-mini contracts ('e-mini futures') position, risks and profits and losses ('P&L') in a FCM firm account he traded," the complaint states.

The e-mini futures contracts are electronically traded on Globex, according to the complaint.

"Taylor concealed his position by (i) bypassing the FCM's internal system designed for the entering and routing of electronic trades to the Chicago Mercantile Exchange ('CME'), and (ii) manually entering fabricate e-mini futures trades ('fabricated trades') in a different internal system that did not route any e-mini futures orders to the CME but instead routed the information to the FCM's internal systems and its books and records.

"Additionally, Taylor obstructed his employer's discovery of his fabricated trades and his position, risk and profits and losses by (i) coordinating the timing of his entry of changes to the size and/or price of his fabricated trade position ('adjustments') with the running of various reports at the FCM, and/or (ii) providing false, misleading or deceptive information and/or reports to the FCM's employees," according to the complaint.

The CFTC says he tried to conceal a roughly $8.3 billion long futures position.

"Taylor's e-mini futures trades and his concealment resulted in realized losses to his employer of approximately $118,440,000, after the offset and liquidation of the position," the complaint states.

The regulators say that Taylor lied to his employer about the trades as his scheme unraveled.

"When Taylor was questioned by an operations employee of the FCM in the morning of December 14, 2007 about the fabricated 120,000 e-mini futures contracts, Taylor falsely represented that he had misbooked a trade or put too many zeroes in the quantity field and would correct the error shortly.

"When Taylor was confronted over the phone by a member of the Market Risk Management & Analysis group ('MRMA') mid-morning on December 14, 2007 about a large approximately $8 billion equity delta (the measure in dollar terms of the net equity exposure that a portfolio creates), Taylor lied to MRMA by responding that the approximately $8 billion equity delta was wrong," the complaint states.

Regulators say that Taylor claimed that the equity delta was $65 million.

The CFTC seeks treble damages for violations of the Commodity Exchange Act.

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