Morgan Stanley Hired Goldman Trader Named in U.S. Suit

Matthew Marshall Taylor, who handled client-related equity derivative trading at Morgan Stanley, left the firm in July, according to Mark Lake, a company spokesman in New York. Photographer: Victor J. Blue/Bloomberg

Nov. 10 (Bloomberg) -- It took Matthew Marshall Taylor less
than three months to land a job at Morgan Stanley after Goldman
Sachs Group Inc. disclosed in a public filing that he had been
fired for building an “inappropriately large” proprietary
trading position.

Taylor was accused Nov. 8 by the U.S. Commodity Futures
Trading Commission of concealing an $8.3 billion position in
2007 that caused Goldman Sachs to lose $118 million.

Goldman Sachs fired Taylor in December 2007 and cited
“alleged conduct related to inappropriately large proprietary
futures positions in a firm trading account,” in a so-called
U-5 form, according to a Financial Industry Regulatory Authority
document. Morgan Stanley, which had employed Taylor before he
joined Goldman in 2005, re-hired him in March 2008, according to
the records.

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.

Bypassed System

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.

Goldman Sachs, which wasn’t identified in the CFTC lawsuit,
said Taylor made the trades while employed at the firm.

“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.”

“Since these events, which had no impact on customer
funds, we have further enhanced our controls,” DuVally said.

The bank is negotiating with the CFTC to resolve an inquiry
related to Taylor’s actions, according to people briefed on the
situation, who requested anonymity because the talks aren’t
public.

Penalty Sought

Taylor, a resident of Royal Palm Beach, Florida, was a vice
president and trader on the Capital Structure Franchise Trading
desk of his employer, according to the CFTC complaint.

The claim against him seeks a penalty of $130,000 or triple
Taylor’s monetary gain for each violation, whichever is higher.

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.

The CFTC seeks a penalty of $130,000 or triple Taylor’s
monetary gain for each violation, whichever is higher.

The case is U.S. Commodity Futures Trading Commission v.
Taylor, 12-cv-8170, U.S. District Court, Southern District of
New York (Manhattan).