Reincarnation on Wall Street: Screw-Ups Never Die

NEW YORK (TheStreet) -- Nothing succeeds like failure on Wall Street. If you don't believe me, just ask Irvin Goldman.

What? You've never heard of Irvin Goldman? Clearly you haven't been following the $3 billion-and-counting JPMorgan Chase trading loss, which has become a kind of giant whoopee cushion beneath the well-compensated tush of the bank's voluble CEO, Jamie Dimon. Goldman, you see, was the top risk official of the bank's chief investment office when it incurred said loss.

As described in the the Wall Street Journal and Bloomberg on Monday, Goldman is something of a loser. But that never stopped him. Au contraire, I think it may have actually helped his career.

To anyone unfamiliar with the culture of Wall Street, the story of Irv Goldman may seem strange. It makes you wonder: How could this guy have been appointed to manage the risk of a pet store, much less the complex and potentially systemically dissettling derivatives portfolios of a major bank?

Goldman, you see, had done such a lousy job at his previous employer, Cantor Fitzgerald, that he was not only fired for losing scads of money but his firm was actually sanctioned by regulators for not doing a good job of supervising him.

But why should that get in the way of a cozy family tradition? Goldman, who had previously been hired by JPMorgan as a trader, was named in February to fill the post vacated the month before by his brother-in-law, Barry Zubrow, who moved to another high-level position in the company. Well, you know what they say: Time heals all wounds. A full two years had passed since Cantor was sanctioned because Goldman screwed the pooch.

The Cantor case came to a head in 2010, when NYSE Arca fined Cantor $250,000 after finding it failed to supervise Goldman, who engaged in money-losing trades "buying and selling the same stocks in personal accounts that he traded in a proprietary account at the New York-based brokerage," Bloomberg reported. His stock investments, it was found, presented a "conflict of interest that could have affected his investment decisions." The particulars were spelled out in a settlement agreement, naming Goldman only by his title, in which Cantor Fitzgerald agreed to the fine without admitting or denying the accusations.

After the Cantor trade in question, but before the NYSE sanctions, Goldman was taken on as a trader by JPMorgan Chase.

JPMorgan is a bank that has systematically sued people for credit card debts they don't owe, so you can't expect them to get upset about something as trivial as a conflict of interest. But you might think that JPMorgan would be concerned about Goldman's record as a trader. According to the Journal, Goldman was fired "in October 2007 after the mortgage-backed securities unit he oversaw racked up at least $30 million of losses on a series of trades, according to a person familiar with the firm."

You'd be wrong there too. Though JPMorgan put Goldman on administrative leave when the bank learned of the NYSE probe at Cantor, he was not only reinstated, but later promoted to chief risk officer. After all, he hadn't done anything really serious, like gotten a credit card or otherwise done anything to merit the wrath of JPMorgan Chase.

The Journal reports that the man who named him chief risk officer didn't know about the lousy trading or the Cantor settlement, "said a person close to the bank." If you can believe that "person" (and I don't) you have to wonder, are the top executives that stupid and reckless at JPMorgan? On second thought, I think I believe that unnamed person after all.

This may seem comical but what I've just described is actually a mild example of the degree to which the financial-services industry forgives, forgets, and even rewards the misconduct and incompetence of its major players. Acts of stupidity that would have resulted in shame and disgrace in other cultures (and industries) are no big deal in finance. No matter how much a financial-services executive has screwed up, people are willing to give them money to manage and positions of responsibility.

John Meriwether is the poster child of the success-in-failure principle. He was in charge of fixed-income trading at Salomon at the time of a bond-trading scandal in 1991, in which traders under Meriwether made false bids in an effort to manipulate the market in two-year notes. Meriwether was assessed $50,000 in civil penalties.

Did that stop Meriwether? Or, to put it another way, did it prevent people from giving him money to manage? On the contrary, investors flocked to Long-Term Capital Management, which he set up after leaving Salomon. In 1998, under his brilliant leadership, LTCM performed so horridly that it required a Federal Reserve-managed bailout, in a dress rehearsal for the government bailouts 10 years later.

Did that stop Meriwether? Or, to put it another way, did it prevent people from giving him money to manage? On the contrary, investors flocked to JWM Partners LLC, which he set up after LTCM went bust. He closed the firm after it was pummeled by the 2008 financial crisis.

Did that stop Meriwether? Or, to put it another way, did it prevent people from giving him money to manage? On the contrary, in 2009 investors flocked to JM Advisors, which he set up after JWM Partners was shuttered. JM Advisors, it was reported in 2009, "is expected use the same strategy as both LTCM and JWM to make money: so-called relative value arbitrage, a quantitative investment strategy Mr. Meriwether pioneered when he led the hugely successful bond arbitrage group at Salomon Brothers in the 1980s."

If and when JM Advisors collapses, I'm sure that will not be the end of the road for John Meriwether, any more than it was for Brian Hunter, whose Amaranth hedge fund collapsed in 2006 after losing natural gas futures bets. He attracted investors to a fund he created called Solengo Capital Partners, though that didn't quite get moving because of continued regulatory fallout from Amaranth. Its primary claim to fame is the lawsuit Hunter filed against Dealbreaker for publicizing some offering documents.

Hedge funds certainly don't have a monopoly on giving losers and misfits a new lease on life. In banking, we have John Thain, the former Goldman Sachs wunderkind who became the not-quite-savior of Merrill Lynch, and who was pushed out of Bank of America in 2009, when Merrill's late-2008 loss became even more of an embarrassment than his $35,000 commode. A year later he was named CEO of CIT Group.

And for those of us of a certain age, there is always the tale of Peter A. Cohen, the 1980s investment banker, formerly with Shearson, who was a loser in the celebrated scramble for a leveraged buyout of RJR Nabisco. After losing out on that high-stakes deal, Cohen moved on to Republic Bank under Edmond Safra, where he was a "fish out of water" as head of Republic's securities division in the days when Glass-Steagall prevented banks from enjoying the full bounty of the securities business. But career setbacks -- even ones so visible that he was portrayed by Peter Riegert in a movie -- didn't keep Cohen down, and he later became CEO of Cowen Group.

Irvin Goldman is expected to leave JPMorgan, but I'd say he has nothing to worry about when it comes to career opportunities. On Wall Street, they don't throw you under the bus when you screw up badly. They find a new bus for you to run into a ditch.

Gary Weiss's most recent book is AYN RAND NATION: The Hidden Struggle for America's Soul, published by St. Martin's Press.

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