Ex-Goldman Economist Sentenced in 30-Year Bond Leak Case

April 9, 2004 (PLANSPONSOR.com) - Former Goldman Sachs & Co economist John Youngdahl has been sentenced to nearly three years in prison for his part in the leak of information about the discontinuation of the 30-year bond.

For releasing the inside information eight minutes earlier, Youngdahl was given two years and nine months in prison — the lightest term possible under federal guidelines – in connection to his plea of guilty to wire fraud, securities fraud and other charges.   Prior to U.S. District Judge Denise Cote’s announcement of the sentence, Youngdahl apologized for hurting his friends, family and colleagues, according to an Associated Press report.

Youngdahl already agreed to pay $240,000 to settle Securities and Exchange Commission (SEC) charges in November.   He must report to prison to serve out his sentence on May 21.

The illicit actions occurred on October 31, 2001, the day the U.S. Treasury department was to announce the discontinuation of sales of the 30-year Treasury bond.   Even though Treasury officials set a strict 10 a.m. embargo on the release of the information, at 9:35 a.m., a consultant hired by Goldman who had attended the Treasury news conference passed the information to Youngdahl, who relayed it to a Goldman trader.

Eight minutes later, the announcement was inadvertently posted by the Treasury Department, which triggered the largest single-day rally in the long-term bond since the stock market crash of October 1987.   During the eight-minute lapse, Goldman bought $84 million in 30-year bonds and $233 million in bond futures contracts — deals that led to $3.8 million in profits when the bonds and futures were sold later. The firm has since agreed to pay $9.3 million to settle SEC charges related to the illegal bond trading.

Initially, Youngdahl denied any wrongdoing, but he reversed his stance in a deal struck with prosecutors who dropped charges of with perjury and lying to the government.