Young trader on £182k's tactics for manipulating colleagues
Things have not worked out well for Travis Klein. Aged in his 30s, he will never work in trading again and has been afflicted with a £73k ($93k) fine from the UK's Financial Conduct Authority (FCA). It could have been worse, though. The FCA wanted to fine him £104k but was lenient when it became apparent that doing so would cause Klein some "serious financial hardship."
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Klein's crime was a spate of 426 "fictitious trades" over a 19-month period while he was working for Macquarie's London metals trading desk between 2020 and 2022. Given that Klein joined Macquarie's graduate program in 2017, he was likely in his 20s when the trades were perpetrated. He earned £288k over those 19 feral months, which implies compensation of £182k a year.
Klein might still be earning that money if he hadn't panicked when Macquarie asked him to derisk his "freight book". The FCA says Macquarie "benched" Klein and asked him to take two weeks out of his positions to observe the market after he'd made big losses. Klein panicked. The market was too illiquid to exit his positions quickly. He pretended to de-risk with his 426 fictitious trades. In fact, he did no such thing.
All the best rogue traders, from Nick Leeson to Kweku Adoboli, know how to play the middle and back office. Leeson and Adoboli both booked fictitious trades and both used their own experiences of working behind the scenes to hide their tracks. Klein, however didn't come up through the middle office and instead seems to have relied entirely on a series of manipulative tactics to get around his colleagues in control functions.
The FCA's ruling details these tactics as follows:
- Amiable vagueness: Klein had two main techniques for his fictitious trades - cancelling trades a few days after they were made and entering trades with a clearing day in the future, which he would perpetually reset further into the future as the time for clearing loomed. When he was asked by an operations colleague about cancelling trades, Klein admitted he'd done it but volunteered no further information and the colleague didn't ask. Where possible, the FCA says Klein would offer information about his trades, but that it would be "superficial" if not "false."
Getting juniors on their own: The FCA says Klein developed a tactic of contacting juniors on the product control team individually and asking them for a breakdown of the total amount of backdated trades for his business. As long as backdated trades netted to below $50k, they weren't subject to scrutiny. Klein therefore needed to make sure he stayed below this threshold. If anyone in product control asked why he was asking, he would revert to tactic 1.
3. Proactive minor confessions: When Klein emailed his friendly isolated juniors in product control, he would be openly self-critical and admit to making mistakes. He told one that he'd “had to rebook a few deals” and that he'd “screwed up the close out date”. He told another that he'd accidentally "entered the wrong price." He proactively confessed to minor wrongdoings. No one supposed that he had anything to hide.
When it became apparent that Klein did in fact have something to hide, he appears to have been grateful for the opportunity to unburden himself. He not only lost his job, but lost Macquarie $58m. That doesn't put him in the same league as Leeson ($1.3bn in the mid-90s) or Adoboli ($2bn in 2011). However, it still leaves him well-placed for developing a new career teaching control staff how to spot rogue traders, particularly those who are charming and appear compliant, even though they're not.
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