In the Matter of: 

UNITED STATES OF AMERICA 

Before the 

COMMODITY FUTURES TRADING COMMISSION 

CFTC Docket No . ....:!:.1""-3-~0=8 ___ _ 

Goldman, Sachs & Co. 

) 

) 

) 

) 

) Respondent 

) 

) ___________________________ ) 

ORDER INSTITUTING PROCEEDINGS PURSUANT TO 

SECTIONS 6(c) AND 6(d) OF THE COMMODITY EXCHANGE ACT, AS AMENDED, 

MAKING FINDINGS AND IMPOSING REMEDIAL SANCTIONS 

I. 

The Commodity Futures Trading Commission ("Commission") has reason to believe that 

Goldman, Sachs & Co. ("Goldman" or "Respondent'') violated Commission Regulation 

("Regulation") 166.3, 17 C.F.R. § 166.3 (2012). Therefore, the Commission deems it 

appropriate and in the public interest that public administrative proceedings be, and hereby are, 

instituted to determine whether Respondent engaged in the violations set forth herein and to 

determine whether any order should be issued imposing remedial sanctions. 

II. 

In anticipation ofthe institution of an administrative proceeding, Respondent has 

submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept. 

Without admitting or denying any of the findings or conclusions herein, Respondent consents to 

the entry of this Order Instituting Proceedings Pursuant to Sections 6(c) and 6(d) of the 

Commodity Exchange Act, as Amended, Making Findings and Imposing Remedial Sanctions 

("Order") and acknowledges service of this Order.' 

1 Respondent consents to the entry of this Order and to the use of these findings in this proceeding and in any 

other proceeding brought by the Commission or to which the Commission is a party; provided, however, that 

Respondent does not consent to the use of the Offer, or the findings or conclusions in this Order consented to in the 

Offer, as the sole basis for any other proceeding brought by the Commission, other than in a proceeding in 

bankruptcy or to enforce the terms of this Order. Nor does Respondent consent to the use of the Offer or this Order, 

or the findings or conclusions in this Order consented to in the Offer, by any other party in any other proceeding. 
III. 

The Commission finds the following: 

A. SUMMARY 

For several months including at least November and December 2007 (the "Relevant 

Period"), Goldman failed to ensure that certain aspects of its risk management, compliance, and 

supervision programs comported with its obligations to supervise diligently its business as a 

Commission registrant. During November and December 2007, Goldman further failed to 

supervise diligently the trading activities of an associated person (hereinafter "Trader"), whose 

trading activities on seven days in mid-November and mid-December 2007 in the e-mini S&P 

500 futures contract traded on the Chicago Mercantile Exchange's ("CME") Globex platfonn 

resulted in a substantial loss to Goldman. 

Specifically, in violation of Commission Regulation 166.3, 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, which aggregated manually entered and electronically 

executed trades in the same product. As a result, on seven trading days in November and 

December 2007, the Trader circumvented Goldman's risk management, compliance, and 

supervision systems, by entering fabricated e-mini S&P 500 sell trades into its manual trading 

system, which artificially offset and thereby camouflaged e-mini S&P 500 buy trades the Trader 

had executed in the market. In particular, the Trader established an $8.3 billion e-mini S&P 500 

position in a Finn trading account on December 13, 2007. Goldman suffered a loss of over $118 

million in unwinding the Trader's position. 

Separately, after the Trader was discharged, Goldman orally notified the CME and the 

Financial Industry Regulatory Authority ("FINRA"). Goldman's ensuing regulatory filings with 

the National Futures Association ("NF A") and FINRA stated that the Trader had been accused of 

"violating investment-related statutes, regulations, rules, or industry standards of conduct" for 

"conduct related to inappropriately large proprietary futures positions in a finn trading account." 

Thereafter, in response to FINRA's follow-up inquiries, Goldman provided additional i~portant 

infonnation only to FINRA, i.e., that the Trader attempted to conceal his trading via fabricated 

trades. Goldman never provided that additional important infonnation to the NF A or the 

Commission until after the CFTC's Division of Enforcement commenced its investigation. 

B. RESPONDENT 

Goldman is registered as a futures commission merchant ("FCM") with the Commission 

and as a broker-dealer with the Securities and Exchange Commission ("SEC"). Goldman's 

principal office is in New York, New York. 

C. FACTS 

During the Relevant Period, Goldman failed to have policies or procedures reasonably 

designed to detect and prevent the entry of fabricated e-mini S&P 500 futures trades into its 

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manual system. Without proper policies and procedures, Goldman's manual trade entry system 

could be exploited by a trader in such a way as to mask electronically traded contracts by 

fabricating offsetting manual trades internally, thereby circumventing risk controls. During the 

Relevant Period, the Trader placed orders for e-mini S&P 500 futures contracts through an 

electronic system that routed orders to the CME's Globex platform for execution. The Trader 

also used a separate manual trade entry system for trades that could not be executed through an 

electronic platform, for example, for trades executed through floor brokers and over-the-counter. 

Electronic and manual trades were aggregated into Goldman's risk management, supervision, 

and compliance systems so as to show net positions. These systems also handled Goldman's 

commodity futures business. 

Approximately sixty times over seven days in mid-November and mid-December 2007, 

the Trader used Goldman's internal manual trade entry system to enter fabricated trades foremini S&P 500 futures. By entering fabricated trades that did not correspond to actual trades in 

the marketplace, the Trader concealed and misrepresented the size of Goldman's e-mini S&P 

500 futures contract position, risk and profits and losses ("P&L") within Goldman's internal 

front office systems and various risk estimates and risk reports, which Goldman relied on to 

determine and manage its risk. Goldman's failure to diligently supervise the Trader's trading 

activities enabled the Trader to amass an $8.3 billion long e-mini S&P 500 futures position in a 

Firm trading account on December 13, 2007. On December 14, 2007, the Trader admitted to the 

true position at the end of the trading day. Goldman ultimately suffered losses of over $118 

million unwinding this position. The Trader was trading for a Firm trading account; there were 

no customer losses. 

On or about December 21,2007, Goldman terminated the Trader and orally notified the 

CME and FINRA. The Trader's termination also gave rise to regulatory reporting disclosures 

and registration withdrawals that were provided to the Commission through the NF A and 

FINRA. Although the filings reflected that the Trader had been "discharged ... after allegations 

were made that accused the [Trader] of ... violating investment-related statutes, regulations, rules, 

or industry standards of conduct" for "conduct related to inappropriately large proprietary futures 

positions in a firm trading account," Goldman did not disclose the Trader's concealment and 

entry of fabricated trades in these form filings. Subsequently, upon further inquiry from FINRA 

regarding the basis for the termination, Goldman then disclosed only to FINRA that the Trader 

had attempted to conceal an e-mini S&P 500 futures position from Goldman and that risk related 

to that position appeared to have been offset by fabricated trades. Goldman never informed the 

NF A or the Commission that the Trader had attempted to conceal the position from Goldman via 

fabricated trades until after the CFTC's Division of Enforcement commenced its investigation. 

D. LEGAL DISCUSSION 

Commission Regulation 166.3 provides that every Commission registrant (except 

Associated Persons ("APs") who have no supervisory duties) must diligently supervise the 

handling of all commodity interest accounts carried, operated, advised or introduced by the 

registrant and all other activities of its partners, employees and agents relating to its business as a 

Commission registrant. Commission Regulation 166.3 imposes on registrants an affirmative 

duty to supervise their partners, employees and agents diligently by establishing, implementing 

and executing an adequate supervisory structure and compliance programs. "The duty to 

3 
supervise ... include[s] the broader goals of detection and deterrence of possible wrongdoing by 

[a registrant's] agents." Lobb v. J. T. McKerr & Co., [1987-1990 Transfer Binder] Comm. Fut. L. 

Rep. (CCH), 24,568 at 33,444 (CFTC Dec. 14, 1989). "In appropriate circumstances, a 

showing that the registrant lacks an adequate supervisory system can be sufficient to establish a 

breach of duty under Rule 166.3." See In re Thomas W: Collins, [1996-1998 Transfer Binder] 

Comm. Fut. L. Rep. (CCH) ~ 27,194 (CFTC Dec. I 0, 1997). A violation under Commission 

Regulation 166.3 is an independent violation for which no underlying violation is necessary. /d. 

at 45,744. 

For the reasons set forth above, Goldman, a registered FCM, violated Regulation 166.3 

because it failed to implement or follow policies and procedures reasonably designed to detect 

and prevent the entry of fabricated futures trades into its manual trade entry systems. Goldman's 

traders' access and use of a manual trade entry system for electronically-traded contracts was 

improperly supervised. In re GNP, [1990-1992 Transfer Binder] Comm. Fut. L. Rep. (CCH) ~ 

25,360 at 39,219 (CFTC Aug. 11, 1992), afrd sub nom., Monieson v. CFTC, 996 F.2d 852 (7th 

Cir. 1993) (discussion of"the importance of a line supervisor's duty to investigate questionable 

activity after that activity is brought to the supervisor's attention"). Regulation 166.3, 17 C.F.R. 

§ 166.3 (20 12). 

In settling this matter, the Commission has taken into account the cooperation of 

Goldman and the corrective action Goldman undertook after the Trader's activities were 

discovered. 

IV. 

FINDINGS OF VIOLATION 

Based on the foregoing, the Commission finds that Goldman violated Regulation 166.3. 

v. 

OFFER OF SETTLEMENT 

Respondent has submitted the Offer in which it, without admitting or denying the 

findings and conclusions herein: 

A. Acknowledges receipt of service of this Order; 

B. Admits the jurisdiction of the Commission with respect to all matters set forth in this 

Order and for any action or proceeding brought or authorized by the Commission based 

on violation of or enforcement of this Order; 

C. Waives: 

1. the filing and service of a complaint and notice of hearing; 

2. a hearing; 

4 
3. all post-hearing procedures; 

4. judicial review by any court; 

5. any and all objections to the participation by any member of the Commission's 

staff in the Commission's consideration ofthe Offer; 

6. any and all claims that it may possess under the Equal Access to Justice Act, 5 

U.S.C. § 504 (2006) and 28 U.S.C. § 2412 (2006), and/or the rules promulgated 

by the Commission in conformity therewith, Part 148 of the Commission's 

Regulations, 17 C.F.R. §§ 148.1-30 (2011), relating to, or arising from, this 

proceeding; 

7. any and all claims that it may possess under the Small Business Regulatory 

Enforcement Fairness Act of 1996, Pub. L. No. 104-121, §§ 201-253, 110 Stat. 

847,857-868 (1996), as amended by Pub. L. No. 110-28, § 8302, 121 Stat. 112, 

204-205 (2007), relating to, or arising from, this proceeding; and 

8. any claims of Double Jeopardy based on the institution of this proceeding or the 

entry in this proceeding of any order imposing a civil monetary penalty or any 

other relief; 

D. Stipulates that the record basis on which this Order is entered shall consist solely of the 

findings contained in this Order to which Respondent has consented in the Offer; 

E. Consents, solely on the basis of the Offer, to the Commission's entry of this Order that: 

1. makes findings by the Commission that Respondent violated Regulation 166.3; 

2. orders Respondent to cease and desist from violating Regulation 166.3; 

3. orders Respondent to pay a civil monetary penalty in the amount of one million 

five hundred thousand dollars ($1 ,500,000); 

4. orders Respondent and their successors and assigns to comply with the conditions 

and undertakings consented to in the Offer and as set forth in Part VI of this 

Order; 

Upon consideration, the Commission has determined to accept the Offer. 

VI. 

ORDER 

Accordingly, IT IS HEREBY ORDERED THAT: 

A. Respondent shall cease and desist from violating Regulation 166.3, 17 C.F.R. § 166.3 

(2012). 

s 
B. Respondent shall pay a civil monetary penalty in the amount of one million five hundred 

thousand dollars ($ 1 ,500,000) within ten (1 0) days of the date of entry of this Order (the 

"CMP Obligation"). Should Goldman not satisfy its CMP Obligation within ten (1 0) 

days ofthe date of entry of this Order, post-judgment interest shall accrue on the CMP 

Obligation beginning on the date of entry of this Order and shall be determined by using 

the Treasury Bill rate prevailing on the date of entry of this Order pursuant to 28 U.S.C. 

§ 1961 (2006). Respondent shall pay the CMP Obligation by electronic funds transfer, 

U.S. postal money order, certified check, bank cashier's check, or bank money order. If 

payment is to be made other than by electronic funds transfer, then the payment shall be 

made payable to the Commodity Futures Trading Commission and sent to the address 

below: 

Commodity Futures Trading Commission 

Division of Enforcement 

ATTN: Accounts Receivables --- AMZ 340 

E-mail Box: 9-AMC-AMZ-AR-CFTC 

DOT/FAAIMMAC 

6500 S. MacArthur Blvd. 

Oklahoma City, OK 73169 

Telephone: ( 405) 954-5644 

If payment is to be made by electronic funds transfer, Respondent shall contact Linda 

Zurhorst or her successor at the above address to receive payment instructions and shall 

fully comply with those instructions. Respondent shall accompany payment of the CMP 

Obligation with a cover letter that identifies the paying Respondent and the name and 

docket number of this proceeding. The paying Respondent shall simultaneously transmit 

copies of the cover letter and the form of payment to the Chief Financial Officer, 

Commodity Futures Trading Commission, Three Lafayette Centre, 1155 21st Street, NW, 

Washington, D.C. 20581 with notice of payment sent to Regional Counsel, Stephen J. 

Obie, 140 Broadway, 19th Floor, New York, New York 10005. 

C. Respondent and its successors and assigns shall comply with the following conditions 

and undertakings set forth in the Offer: 

1. Public Statements: Respondent agrees that neither it nor any of its successors and 

assigns, agents or employees under its authority or control shall take any action or 

make any public statement denying, directly or indirectly, any findings or 

conclusions in this Order or creating, or tending to create, the impression that this 

Order is without a factual basis; provided, however, that nothing in this provision 

shall affect Respondent's: (i) testimonial obligations; or (ii) right to take legal 

positions in other proceedings to which the Commission is not a party. 

Respondent and its successors and assigns shall undertake all steps necessary to 

ensure that all of its agents and/or employees under its authority or control 

understand and comply with this agreement. 

2. Cooperation with the Commission: Respondent shall cooperate fully and 

expeditiously with the Commission, including the Commission's Division of 

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Enforcement, and any other governmental agency in this action, and in any 

investigation, civil litigation, or administrative matter related to the subject matter 

of this action or against the Trader or any current or future Commission 

investigation related thereto or against the Trader. 

3. Partial Satisfaction: Respondent understands and agrees that any acceptance by 

the Commission of partial payment of Respondent's CMP Obligation shall not be 

deemed a waiver of its obligation to make further payments pursuant to this 

Order, or a waiver of the Commission's right to seek to compel payment of any 

remaining balance. 

4. Change of Address/Phone: Until such time as Goldman satisfies in full its CMP 

Obligation as set forth in this Consent Order, Goldman shall provide written 

notice to the Commission by certified mail of any change to his telephone number 

and mailing address within ten (10) calendar days ofthe change. 

5. Undertakings and Representations: In its Offer, Goldman represents that it has 

implemented written enhancements to its U.S. futures-related trading and risk 

management controls reasonably designed to prevent and promptly detect manual 

entry of fabricated futures trades into Goldman's systems, including but not 

limited to increased intra-day monitoring of futures-related trade breaks, enhanced 

communications among risk, control and supervisory functions, and the 

development of additional surveillance tools designed to assist supervisors with 

monitoring unusual intra-day trading activity in U.S. futures. 

Goldman undertakes to implement a written procedure to enhance its provision of 

information to the NF A and the Commission about misconduct or alleged 

misconduct of terminated Goldman employees that relates to trading on a 

Commission-regulated market to ensure that termination notifications of 

associated persons, including follow-up disclosures, are provided to the NF A and 

the Commission. 

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The provisions of this Order shall be effective as of this date. 

Dated: December 7, 20 12 

By the Commission (Commissioners 

SOMMERS, O'MALIA and WETJEN; 

Commissioner CHILTON concurring in part 

and dissenting in part; Chairman GENSLER 

not participating)