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US CFTC penalizes Goldman for supervision failures

The US Commodity Futures Trading Commission (CFTC) has fined investment banker Goldman Sachs Group $1.5m for failing to carry out diligent supervision of its employees.

Goldman former employee Matthew Taylor hid an $8.3bn trading position by exploiting its internal control failures including risk management, compliance, and supervision programs; subsequently causing over $118m losses in unwinding Taylor’s position.

In its order, the CFTC said, "Goldman failed to have policies or procedures reasonably designed to detect and prevent the manual entry of fabricated futures trades into its front office systems."

The US watchdog further accused Taylor for entering forged e-mini S&P 500 futures trades into the FCM’s manual trade entry system, in order to hide the size of the futures contracts.

"As a result, on seven trading days in November and December 2007, Taylor circumvented Goldman’s risk management," the market watchdog said.

The CFTC also accused Goldman for hiding information about Taylor’s act, until after the Division of Enforcement started the investigation leading to the current settlement.

Goldman has agreed to settle the charges by paying the aforesaid civil monetary penalty and also agreed to improve its trading & risk management controls and supervision policies and procedures.

The market regulator has also asked the banker to cease and desist from violating a CFTC regulation, which needs to be supervised thoroughly.