A Manhattan federal judge yesterday sentenced a former Goldman Sachs economist to nearly three years in prison for passing on a tip that netted the investment bank $3.8 million in illicit bond market profits.
“I would beg the court’s mercy,” John Youngdahl, 44, told Judge Denise Cote, before she handed him the 33-month sentence, the shortest term possible under federal guidelines.
Youngdahl’s sentence closed a chapter in a bizarre story that began the morning of Oct. 31, 2001, when a consultant hired by the Goldman economist learned at a government briefing that the Treasury Dept. was about to end sales of its benchmark 30-year Treasury bond.
The government had ordered people at the briefing not to publicize the information until 10:00 a.m. – but the consultant, Peter Davis, called Youngdahl and told him about it at 9:35 a.m.
Youngdahl then relayed the information to Goldman traders.
A Treasury Dept. staffer inadvertently posted the announcement on the Internet at 9:43 a.m. and the news set off a massive day of trading in long-term bonds.
But in the eight minutes that Goldman had exclusive hold on the tip, the company bought $84 million in 30-year bonds and $233 million in bond futures contracts.
The firm then turned around and sold the bonds and futures later in the day – netting a $3.8 million profit.
When the insider trading was uncovered, Youngdahl at first denied his role.
But he soon found “it had spun hopelessly, recklessly out of control. He woke up in the middle of a tragedy,” Youngdahl’s lawyer Steven Cohen told the judge.
Cohen said Youngdahl, a Goldman veteran, passed on the tip “out of misplaced loyalty to his employer, Goldman Sachs, which he loves.”
“This is a man who is not motivated by greed. This is a man who made a tragic mistake,” Cohen said.
Cote said she had received letters from Youngdahl’s supporters saying the New Jersey man is an “exceptional father” who is “loved and admired” by many.
But she said a prison sentence was necessary to dissuade others from committing financial fraud.
Youngdahl must report to prison next month. He asked to serve his time in a Pennsylvania prison not far from his home.
Cote imposed no fine, but Youngdahl has previously agreed to pay a $240,000 fine to the Securities and Exchange Commission.
Goldman Sachs has also agreed to pay $9.3 million to the SEC for the illegal bond trading.
Davis, the consultant who passed the tip to Youngdahl, has pleaded guilty to fraud and conspiracy and is awaiting sentencing.
Youngdahl, who joined Goldman in the mid-1980s, quit the company last June.