Two market professionals pleaded guilty to criminal charges related to securities transactions yesterday. In one case former stock broker Thomas Conradt pleaded guilty to insider trading charges. U.S. v. Martin, Case No. 12-cr-0087 (S.D.N.Y.). In the other former stock trader Matthew Taylor pleaded guilty to wire fraud. U.S. v. Taylor, Case No 13-cr-251 (S.D.N.Y.).
The Martin case is based on the acquisition of SPSS Inc. by International Business Machine, announced on July 29, 2009. Following the announcement of the deal the share price of SPSS common stock rose 41%. Mr. Conradt is a former stock broker who learned about the deal from his roommate, Trend Martin, a former financial analyst. Mr. Martin was informed about the transaction by a corporate lawyer working on it with the understanding that the information would remain confidential. The understanding was based on a long standing relationship between the two men.
Contrary to the understanding with his friend, Mr. Martin purchased shares and options of SPSS in June and July 2009. He also told Mr. Conradt. He purchased shares of the target. He also told his friend David Weishaus who purchased shares and options and passed the information to two others. Mr. Martin, an Australian citizen, was extradited from Hong Kong. The trading profits for the group were about $1 million.
Taylor is based on the outsized trading of Matthew Taylor in violation of internal procedures at his employer, Goldman Sachs & Co. At the firm Mr. Taylor was a member of the Capital Structure Franchise Trading group which was responsible for equity derivatives trades. In late 2007 his trading profits plunged. The firm informed him that his bonus, which had been $1.5 million along with a salary of $150,000, was going to be cut. He was also directed to reduce risk taking.
In an effort to enhance his reputation as a trader and win back the lost compensation, Mr. Taylor placed unauthorized futures trades totally $8.3 billion. The position not only exceeded his risk limits but also those of the entire trading group. In an effort to avoid detection Mr. Taylor manually made entries into the firm systems, falsifying the records.
The trades first surfaced last November when the CFTC filed an enforcement action against Mr. Taylor. The agency also brought failure to supervise charges against the firm. Goldman settled, agreeing to pay $1.5 million. After being fired by Goldman Mr. Taylor worked at Morgan Stanley for a period and then left.
Prosecutors will seek a sentence of 33 to 41 months and a fine of $7,500 to $75,000 at Mr. Taylor’s sentencing on July 26, 2013. At the time of the guilty plea the Court suggested that any such agreement may not be honored, according to a report by Reuters.