Wall Street economist jailed for insider bond trade tip-off

Published on Saturday 10 April 2004 01:00

A FORMER Goldman Sachs economist was sentenced to nearly three years in prison yesterday for using an insider bond tip that allowed the firm to make millions in tainted profits.

The sentence came after John Youngdahl, 44, said he was "deeply sorry" for hurting his family, friends and colleagues.

The judge, Denise Cote, sentenced Youngdahl to two years and nine months in prison - the lightest term possible under federal guidelines.

He pleaded guilty last year to wire fraud, securities fraud and other charges.

When the United States’ government announced on 31 October, 2001, that it was ending sales of its benchmark 30-year treasury bond, officials set a strict 10am embargo, meaning no-one could publicise the information until then.

But at 9:35am, a consultant hired by Goldman, who had attended the treasury news conference, passed the information to Youngdahl, who relayed it to a Goldman trader.

A US treasury department employee inadvertently posted the announcement online eight minutes later.

The news triggered the largest single-day rally in the long-term bond since the stock market crash of October 1987.

During the eight-minute gap, Goldman bought 46 million in 30-year bonds and 127 million in bond futures contracts - deals that led to 2.7 million in profits when the bonds and futures were sold later.

The firm has since agreed to pay 5.7 million to settle Securities and Exchange Commission charges related to the illegal bond trading.

After initially denying wrongdoing to prosecutors, Youngdahl found "it had spun hopelessly, recklessly out of control", Steve Cohen, his lawyer, told the judge. "He woke up in the middle of a tragedy, and that is why we’re here."

The former economist agreed in November to pay 131,000 to settle related SEC charges.