Ex-Goldman Prop Trader Who Concealed $8.3 Billion Market Moving E-Mini Position, Turns Himself In To FBI

The story of ex-Goldman's prop-trader Matt Taylor is well known: in November of last year, he was accused by the CFTC of concealing a massive, market-moving $8.3 billion ES position, and was charged by the CFTC, who sought a whopping $130,000 in penalties for what was obviously an attempt to move the market using size and scale (a la Bruno Iksil) on December 13 and 14, 2007. Taylor, who left Goldman in 2008 because apparently his attempt had been discovered amid allegations of "conduct related to inappropriately large proprietary futures positions in a firm trading account" and ended up working as Co-Head Single Stock Derivatives at Morgan Stanley until July 2012, prudently denied all accusations. However, roughly an hour ago, news broke that he had finally turned himself in to the Feds and is now expected to plead guilty to what for now are still unclear criminal charges.

From Reuters:

Ex-Goldman Sachs Group Inc trader Matthew Marshall Taylor has turned himself in to federal authorities in connection with charges that he defrauded the Wall Street bank out of $118 million in 2007, two sources familiar with the matter said.


Taylor voluntarily turned himself in to agents with the Federal Bureau of Investigation in New York around 8:30 a.m. EDT on Wednesday morning, said the sources, who spoke on condition of anonymity.


Taylor's move on Wednesday is related to criminal charges that are expected to come from federal prosecutors in New York. He is expected to plead guilty to those charges later on Wednesday, the sources said. It was not clear precisely what he will be charged with.

Some more on the pre-story from Bloomberg:

Morgan Stanley hired Taylor after a subprime mortgage- related trading position resulted in a $9.4 billion writedown in December 2007, which caused the New York-based company to oust co-president Zoe Cruz and sell a $5 billion stake to state- controlled China Investment Corp.


Taylor, who handled client-related equity derivative trading at Morgan Stanley, left the firm in July, said Mark Lake, a company spokesman in New York. Taylor’s departure wasn’t related to the CFTC complaint filed against him Nov. 8, said a person familiar with the situation who asked not to be identified because the information was private.


According to the CFTC complaint filed in federal court in Manhattan, Taylor concealed his position by bypassing the firm’s internal system for routing trades to the Chicago Mercantile Exchange and manually entering fabricated futures trades in a different internal system.


Matt Taylor provided false explanations when confronted about irregularities we detected in his account during the Dec. 14, 2007, trading day,” Michael DuVally, a Goldman Sachs spokesman, said in an e-mailed statement. “He admitted his misconduct following the market close, and was promptly removed from his job and terminated soon thereafter.”


Taylor’s lawyer, Ross Intelisano of New York, said his client denied all the allegations and is disappointed that the CFTC filed a complaint.


Matt never intentionally entered ‘fabricated trades’ to conceal any trading activity and Goldman never alleged he did so at the time of his termination or thereafter,” Intelisano, of Rich, Intelisano & Katz LLP, said in an e-mailed statement. “Matt, himself, brought the trading losses to the attention of senior managers at Goldman on the day they occurred.”


CFTC said in its complaint that by Dec. 13, 2007, “Taylor’s scheme culminated in his concealment of a notional value of an approximately $8.3 billion long e-mini futures position.” E-minis are futures contracts tied to the S&P 500 Index.

Take home lesson boys and girls? When attempting to corner the ES (and thus the entire stock market) by using a (failed) Monte Carlo strategy, i) have an unlimited balance sheet, kinda like what Bruno Iksil thought he had, preferably funded by customer deposits ii) keep doubling down and don't screw up; iii) if you screw up, never admit you did anything wrong, and iv) if i, ii and iii above fail, plead ignorance and get a job at Morgan Stanley which apparently will welcome anyone who has problems with i, ii and iii with open arms. And, of course, v, make sure to have lots and lots of money stashed in an offshore bank account for rainy days... preferably not in a Cypriot bank.


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