In a surprise, ex-Goldman trader pleads guilty in fraud probe

New York • A former Goldman Sachs trader pleaded guilty to wire fraud Wednesday, admitting that he caused his company to lose $118 million in 2007 when he put $8 billion at risk, escalating a case that until now has produced only civil charges.

Matthew Marshall Taylor, 34, said he took the position on a futures contract traded electronically through the Chicago Mercantile Exchange in December 2007 to enhance his reputation and boost his earnings in a year when he made $150,000 in salary and $1.6 million in bonuses. At the time, he was working at Goldman Sachs in lower Manhattan.

The plea comes as a surprise development in a case that seemed limited to regulatory actions. Last year, the Commodity Futures Trading Commission accused Taylor of defrauding Goldman. Taylor, the agency said, bypassed Goldman's internal controls and manually entered his "fabricated" futures trades so they did not register on the radar screen of the CME Group, the giant exchange. The trading, which occurred in late 2007, prompted about $120 million in losses for Goldman.

The blowup also created a regulatory headache for the bank. The trading commission last year sanctioned Goldman for failing to supervise Taylor, who more recently worked for Morgan Stanley. In December, Goldman paid $1.5 million to settle the case.

According to court papers filed in Manhattan, Taylor entered fictitious information in trading account records and lied to company representatives to cover up the fact that he had put 10 times more money at risk in the trade than he was allowed. He claimed that the $8 billion at risk was actually only $65 million, the papers said.

U.S. District Judge William H. Pauley III said he was concerned that the government in a plea deal was holding Taylor responsible for no more than $2.5 million in losses. The amount of money lost in financial crimes usually plays a significant role in the length of any prison sentence.

The judge also said he could not understand why the government was not making a legal finding that Taylor had used "sophisticated means" to carry out the crime. Such a designation would again likely increase the length of any prison sentence. Pauley also noted that the government could have claimed that the crime endangered the financial health of Goldman Sachs, a designation that also could increase a prison sentence. A prosecutor said he did not believe either enhancement was appropriate because Taylor carried out the fraud in a manner similar to his usual work patterns and the company's financial stability was not threatened.

"The court's puzzled by the lack of any enhancements in this case with the loss of $118 million," Pauley said. "He created fictitious interactions and then lied about them for a period of time. I don't understand how that doesn't involve the use of sophisticated means."

Pauley added: "He cooked the books and that's not sophisticated?"

Taylor was freed on $750,000 bond. He could face up to 20 years in prison at a July 19 sentencing. After the plea, prosecutors released copies of the written plea deal in which lawyers agreed that Taylor should receive a punishment of about three years in prison and up to $75,000 in fines. Pauley cautioned both sides that he was not bound to sentence according to the terms of their deal.