Goldman, Sachs & Co. has settled with U.S. derivatives regulators, agreeing to pay a US$1.5 million penalty for supervisory failures that led to a US$100 million trading loss.

The U.S. Commodity Futures Trading Commission (CFTC) announced Friday that Goldman Sachs has been ordered to pay US$1.5 million to settle CFTC charges that it failed to diligently supervise its employees for several months in late 2007. As a result of that lapse in supervision, it says that a former Goldman employee hid an US$8.3 billion trading position, and that the firm lost more than US$100 million unwinding the position.

According to the CFTC’s order, for several months, Goldman failed to ensure that certain aspects of its risk management, compliance, and supervision programs met its supervisory obligations. In particular, it says that the firm failed to supervise a former Goldman trader whose trading activities resulted in a substantial loss.

It says that Goldman failed to have policies or procedures reasonably designed to detect and prevent the manual entry of fabricated futures trades into its front office systems. As a result, the trader was able to circumvent Goldman’s risk management, compliance, and supervision systems, by entering fabricated sell trades to artificially offset and thereby camouflage buy trades he had executed in the market.

Last month, in a related action, the CFTC filed an enforcement action in the Federal District Court for the Southern District of New York, charging the trader with defrauding Goldman by intentionally concealing the true size, as well as the risk and potential profits or losses associated with his positions.

CFTC commissioner, Bart Chilton, issued a statement disagreeing with the size of the penalty agreed to by the firm and the regulator. “In this instance, given the egregious nature of the failure to supervise adequately, combined with the high number of violative transactions, I believe that the monetary penalty should be significantly higher in order to represent a sufficient punishment, as well as to denote a meaningful deterrent to future illegal activity,” he said.

Chilton also said that the law should be amended to increase maximum penalty levels to US$250,000 per violation for individuals and US$1 million for firms. And, in instances of market manipulation, the maximum penalty levels for individuals should be US$1 million per violation, and US$10 million for firms.

And, he argued that the CFTC should revise its policy statements relating to the imposition of monetary penalties, so that violations that threaten significant risk of harm to customers or markets should be subjected to higher fines.