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Goldman settles insider trading { September 4 2003 } Original Source Link: (May no longer be active)    http://asia.reuters.com/newsArticle.jhtml?type=businessNews&storyID=3389739 http://asia.reuters.com/newsArticle.jhtml?type=businessNews&storyID=3389739 Goldman Settles Insider Trading Case Thu September 4, 2003 03:06 PM ET By Paul Thomasch and Chris Sanders NEW YORK (Reuters) - Investment bank Goldman Sachs Group Inc. settled charges on Thursday that it failed to properly oversee a senior economist indicted for insider trading to help the firm reap millions of dollars in profits from illegal trading of U.S. Treasury bonds. At the same time, James Comey, U.S. Attorney for the Southern District of New York, announced a seven-count indictment of former Goldman senior economist John Youngdahl for insider trading, making false statements, perjury, fraud and other charges. Goldman agreed to pay a $5 million fine and disgorge $4.3 million from illegal trading profits. "A scheme to steal confidential information from the Treasury Department and tip off others shakes the confidence of the investing public," Comey said at a press conference in New York. "It is not to be tolerated." Comey also said Peter Davis Jr., a Washington consultant, pleaded guilty to charges of insider trading and conspiracy relating to the bond trading case. At issue in the case is Treasury's historic announcement on Oct. 31, 2001 that it would no longer issue benchmark 30-year bonds. The news ignited a powerful bond rally, and prosecutors charged that Davis and Youngdahl conspired to trade on the information before it was public. The Securities and Exchange Commission also brought related civil charges against Davis, Youngdahl and Steven Nothern, a bond fund manager for Massachusetts Financial Services Co. MFS declined to comment on Nothern. His attorney, Nicholas Theodorou with Foley Hoag LLP, said: "Mr. Nothern intends to vigorously defend himself in this case." Davis' attorney, Mary Spearing of Baker Botts LLC, and Youngdahl's attorney, Alan Levine of Kronish Lieb Weiner & Hellman LLP, were both unavailable for comment. For its part, MFS agreed to pay a fine of almost $200,000 and return more than $700,000 in trading profits. "MFS is pleased to have resolved this matter. MFS voluntarily reported to the SEC that we traded in 30-year Treasury bonds on Oct. 31, 2001 and cooperated fully with the SEC investigation," said MFS spokesman John Reilly. THE WAY IT WORKED Prosecutors charge that Davis regularly attended the quarterly press conferences where Treasury officials announced debt financing plans for the months ahead. Information was given with the understanding participants will embargo it for later release to ensure the news outlets attending would all be able to release the information at the same time. At the Oct. 31, 2001 event, participants including Davis were told the Treasury would no longer issue 30-year U.S. Treasury bonds. He then called Youngdahl ahead of the embargo time and told him about the market-moving information. Davis made a similar call after a Treasury Department meeting on Aug. 1, 2001, prosecutors said. The indictment charges that Youngdahl and Davis had agreed that, "Davis would misappropriate, convert and steal confidential, material, nonpublic information obtained at the quarterly refunding press conferences and convey it to Youngdahl before the embargo was lifted." After taking the call from Davis regarding the announcement at the Oct. 31 event, Youngdahl passed on the information to Goldman traders, allowing them to make at least $3.5 million in illegal profits when 30-year bond prices soared after the market learned of the bond's cancellation. "We find this entire matter extremely embarrassing," said Goldman Sachs spokesman Lucas Van Praag. "It's a dark day for Goldman Sachs and serves to highlight that a single act has potential to undermine the best efforts of everyone at the firm."

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