It has taken many years, but we might see one Wall Street trader investigated for malfeasance. Glenn Hadden, a former partner at Goldman Sachs now on the trading desks at Morgan Stanley, faces an inquiry into his practices at Goldman.
Specifically, regulators at the CME Group, which runs commodity and futures exchanges, are investigating whether Mr. Hadden’s purchases or sales of Treasury futures late in the trading day manipulated closing prices in the market and, in turn, made other of his trades more profitable, according to people briefed on the matter who were not authorized to speak publicly.
Mr. Hadden, who is now the head of the global interest rates desk at Morgan Stanley, has been given formal notice by the CME that an inquiry is under way, meaning that it is at an advanced stage.
Through a Morgan Stanley spokesman, Mr. Hadden, 42, declined to comment. Goldman Sachs also declined to comment, and Morgan Stanley would say only that Mr. Hadden continues to work at the firm as head of global rates.
The complaint, you’ll be unsurprised to know, is civil rather than criminal. The biggest penalty would be a bar from trading on commodity or future exchanges, in addition to millions in fines.
This brings up a point about the seemingly stalled Libor investigation. I’m so old I can remember back a few months ago, when reports ensured that regulators were “weeks” away from making arrests. This has so far not happened. And the Hadden inquiry shows in some way the consequences of a lack of prosecutions. Goldman actually got cold feet on Hadden’s aggressive trading strategies, and put him on paid leave. After Hadden left the firm, Morgan Stanley picked him up within days.
Without prosecutions, there was no stigma on the part of Morgan Stanley to hiring someone with a dodgy past. In fact, they put Hadden on the interest rate trading desk, a new area of interest for Wall Street firms. He has generally done well, but in 2011, he lost tens of millions of dollars for the firm betting on inflation expectations. So high-risk traders have the potential for losing big on high-risk trades. This increases the risk in the system. It also trends the industry toward cutting legal corners, especially in the even that there’s no actual sanction.
Maybe Hadden getting banned from trading will somehow create the long-absent deterrent for financial fraud. But actually putting him in jail would go a bit further.