Economist sentenced for bond tip

NEW YORK (AP) — A former Goldman Sachs & Co. economist was sentenced to nearly three years in prison yesterday for relaying an insider bond tip that allowed the firm to make millions of dollars in tainted profits.

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

U.S. District 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.

The government announced Oct. 31, 2001, that it was ending sales of its benchmark 30-year Treasury bond. Officials set a strict 10 a.m. embargo, meaning no one could publicize the information until then.

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

A Treasury Department employee inadvertently posted the announcement online at 9:43 a.m., eight minutes later. The news triggered the largest single-day rally in the long-term bond since the stock crash of October 1987.

During the eight-minute gap, Goldman bought $84 million in 30-year bonds and $233 million in bond futures contracts — buys 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 Securities and Exchange Commission charges related to the illegal bond trading.

Youngdahl’s friends, family and former colleagues filled the Manhattan courtroom where he was sentenced. His lawyer, Steve Cohen, said Youngdahl’s crimes stood in contrast to his exemplary character in the rest of his life.

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

The lawyer said Youngdahl had compared his situation to the Franz Kafka novel “The Metamorphosis,” in which a man awakes in his bed to find he has been transformed into a giant bug.

Youngdahl must report to federal prison May 21. Judge Cote said she would recommend that federal prison officials assign him to a prison in White Deer, Pa., near his hometown of Summit, N.J.

“Let this be a reminder: We will be relentless in the investigation and prosecution of financial wrongdoing, whether in the boardroom, the back office or on the trading floor,” U.S. Attorney David Kelley said.

The former economist agreed in November to pay $240,000 to settle related SEC charges.

The consultant accused of passing the tip to Youngdahl, Peter Davis, has pleaded guilty to fraud and conspiracy and is awaiting sentencing. He has also agreed to pay nearly $150,000 to settle SEC charges.

Prosecutors had also charged him with perjury and lying to the government, but those counts were dropped when he agreed to plead guilty to the other counts.

Judge Cote commended Youngdahl for apparently being a good father, husband and friend, but she said a prison sentence was important to deter others from committing similar crimes.