Meet the most successful rogue trader of all time

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J.P. Morgan
Morgan, you old rogue! J.P. in 1904.
Image: AP Photo

We know how it is. You’re a young guy. You’ve got trade ideas in your heart. Cat-like instincts. Hawk-like vision. What are you missing? Inconveniently, cash. Just enough to take that position on a big, obvious, tantalizing, surest-of-sure things.

The annals of finance are littered with rogue traders who succumbed to this sort of rationale.

Notable recent additions to the rogues gallery include Kweku Adoboli, a former UBS trader accused of vaporizing about $2.3 billion, and at one point putting the Swiss bank on the hook for as much as $12 billion. And then there was Jérôme Kerviel, late of Société Générale, who was just sentenced to three years in prison. You may also know him as the “Most Indebted Man in the World.”

But this list goes on. John Rusnak in 2002. Yasuo Hamanaka in 1996. Who could forget Nick Leeson, a trader who in 1995 caused the collapse of the 233-year-old British merchant bank, Barings.

Of course, these are the guys—all guys, by the way—that got caught. And as always lurking behind the rogue trader phenomenon is the notion that “rogue” traders only seem to surface when their trades are losers. It stands to reason that there must be unauthorized trades that actually end up generating massive profits too. Strangely, banks don’t seem to make a big public stink about those. So we usually don’t hear about them.

But over time, such stories have a way of getting out.

Which brings us to perhaps the most-successful rogue trader of all time. In 1857, while working as an accountant for the firm of Duncan, Sherman—a position his Wall Street banker father, Junius Spencer Morgan, had secured for him—a young John Pierpont Morgan himself heard the siren sounds of unauthorized trading. We turn it over to Ron Chernow from his wonderful read, House of Morgan: An American Banking Dynasty and the rise of American Finance.

After Pierpont started work at Duncan, Sherman during the panic year of 1857, he displayed awesome but unsettling precocity. While visiting New Orleans in 1859, he entered into a rash, unauthorized speculation. He gambled the firm’s capital on a boatload of Brazilian coffee that had arrived in port without a buyer. He bought the entire shipment and resold it at a quick profit. The first proof of his supreme confidence petrified the grey men of Duncan, Sherman. It was probably on the basis of this incident that the firm refused to make Pierpont a partner. In 1861, he struck off on his own forming J.P. Morgan and Company at 54 Exchange Place with his cousin James J. Goodwin.

In his book The Tycoons, Charles Morris recounts another version of the story:

One incident, which Pierpont relished telling in later years, demonstrated his independent streak. Sent to visit merchant customers in New Orleans, Pierpont saw a chance to make a killing in coffee beans and used Duncan, Sherman credit to take a large position. When the anticipated outraged telegram from New York arrived, Pierpont laconically replied that the position had been sold out and he was remitting a substantial profit. He later asserted that there was no risk in the deal because he thoroughly understood what he was doing.

Of course, it’s not quite fair to characterize one of the titans of American capitalism as just another rogue trader. After all, Morgan helped create industrial giants such as General Electric and US Steel. He pretty much single-handedly ran Wall Street for a generation. He orchestrated bailouts—that’s plural—of the United States government in 1893 and 1907. Still, it’s worth pointing out that had things gone differently on that coffee trade, John Pierpont Morgan might merely have been a footnote to history.