(Bloomberg) -- Goldman Sachs Group Inc. has conducted an internal review of transactions made by an employee who generated $250 million trading junk bonds, finding that they didn't violate a ban on buying and selling for the bank's own account, according to people with knowledge of the firm's actions.
The bank's compliance staff pored over Thomas Malafronte's trades to ensure the company could defend them against regulatory scrutiny, according to two of the people, who asked to remain anonymous discussing the confidential examination. Tiffany Galvin, a spokeswoman for the New York-based bank, declined to comment on the review or any inquiries received.
Malafronte attracted attention last month when news reports said he generated more than $100 million earlier this year by trading the debt of junk-rated energy firms and retailers. That prompted questions about whether he complied with the Volcker Rule, part of the 2010 Dodd-Frank Act aimed at preventing banks from wagering money in ways that don't benefit clients.
Malafronte's revenue had swelled to about $250 million by the start of last month, according to two of the people with knowledge of the matter. That probably positioned him to rank among the most successful traders this year across all major Wall Street banks, according to market observers and staff at rival firms.
In addition to examining Malafronte's transactions, compliance employees at Goldman Sachs contacted executives in his credit-trading group, compiled documentation and prepared material to show regulators, the people said.
Bank Safety
The Volcker Rule, named for former Federal Reserve Chairman Paul Volcker, seeks to make the financial system safer by barring banks with federally insured deposits from betting their own money. Such wagers once drove epic profits -- and bonuses -- in the years before the crisis.
Now traders are largely relegated to the business of helping customers buy and sell securities, profiting on the spread and movement in prices. But the line between that business and speculating on prices by holding positions for days or weeks can be blurry.
Goldman Sachs isn't alone in generating large trading gains. A team of Citigroup Inc. traders on the U.S. dollar interest-rate swaps desk led by Geoff Weber in New York generated about $300 million of revenue this year, thriving by serving companies and investors trying to anticipate central bank decisions, people familiar with the matter said last month.
--With assistance from Dan Reichl To contact the reporters on this story: Dakin Campbell in New York at dcampbell27@bloomberg.net, Sridhar Natarajan in New York at snatarajan15@bloomberg.net. To contact the editors responsible for this story: Peter Eichenbaum at peichenbaum@bloomberg.net, Nikolaj Gammeltoft at ngammeltoft@bloomberg.net, David Scheer, Steve Dickson
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