What's up guys and welcome back to wall street millennial over the years we've seen many simple mistakes and fat finger traits cause millions of dollars of losses for various companies. In a matter of minutes, a firm can lose tens or hundreds of millions of dollars just because one of its employees made a mistake. For example, there was a time when an employee at night capital accidentally installed the wrong computer code on one of its automated trading servers, causing 45 minutes of nonsensical orders to be submitted by the firm during live trading by the time. Anyone noticed anything was wrong.

The firm had lost half a billion dollars and couldn't stay solvent. Then there was a time in 2020 when citibank, acting as a broker for the cosmetics company, revlon borrowing, money from several creditors paid off revlon's entire debt load by accident. They sent nearly a billion dollars of their own money to revlon's creditors, when many people assumed that revlon would never be able to repay those debts. In the end, a u.s judge ruled that the creditors could keep cities.

Money and city would be on the hook. If revlon defaulted on the loans, both of these blunders were incredibly embarrassing for the two well-respected financial institutions of their times, but today we're going to talk about another trading blender, even more shocking and ridiculous than either of those. Two. This blunder involves an elite oil derivatives.

Brokerage, a single star trader and lots of alcohol we're talking about the time when a single drunken trader traded 10 times the normal volume of all the market activity in the oil derivatives market. All while being blackout drunk pvm oil futures is a london-based broker for oil derivatives contracts, including futures swaps, and physical crude oil. They are one of the world's biggest so-called over-the-counter brokers for oil instruments. The term over-the-counter indicates that the trading is done directly between two counterparties.

With the help of a broker, but not in exchange, there are several reasons why traders may be interested in trading commodity instruments over the counter, rather than on an exchange. One reason is that for very large order sizes it can be difficult to fill the order without adversely moving the market. If this is the case, people wanting to buy or sell large blocks of a financial instrument may go to a broker to see if the broker can find a counterparty for them to trade with, hopefully providing a better price. The people who use brokers like pvm range from large multinational corporations seeking to use oil derivatives to hedge, their oil price risk to individuals just trading on their own accounts for fun.

Steve perkins was a senior broker at pvm. He was one of the high up traders of the firm and had been working there for more than 10 years. At the time of the incident, he worked on the brent futures desk with pvm the entire time that he worked at the firm in his role as a broker. He executed trades for clients attempting to get the best price for the trades as possible.

Pvm did not engage in proprietary trading, in other words, they only executed traits directed by their clients. They did not try to trade, their clients accounts in order to generate trading profits and steve perkins was not authorized to do so. Pvm and other brokerage firms are relatively small firms in absolute terms, employing only a small number of people. This is because it only takes one broker to execute a trade for a client, but how good of a job a broker does can be worth a lot of money to both the client and the brokerage company.

So the small number of people that brokerage firms do hire are usually very highly paid. On june 29th 2009 pvm hosted a company golf outing for its brokers. During this outing there was a lot of alcohol served. The outing ended by the early afternoon after which perkins returned to his home in london.

However, he did not stop drinking on his own as one of the perks of being a star oil broker. Perkins was able to trade off his laptop from anywhere, including at the office and at his own home, starting at 1 34 pm. On the same day, he started trading oral futures on a client's account when he submitted, buy and sell orders for 25 lots of a brent crude contract. That order was authorized by the client, but one hour later, perkins decided to start trading on its own accord over the course of five hours from 2 30 pm to about 7 15 pm.

He placed seven unauthorized trades without the knowledge or consent of the client using the client's own money. After this five hour period, he had built up a net long position in oil futures worth millions of dollars, but as the night wore on, and he drank more and more alcohol, his training became even more erratic from 1. 20 am to 3 40 am in the morning of june 30th. He was blackout drunk and had no recollection of the trades that he placed he traded more than 10 million barrels of oil and ended up with a net long position worth more than 7 million barrels.

That position was worth more than half a billion dollars, a huge amount for a single trader, even in the liquid oil markets. The average traded volume during the time of the day that these trades were placed was less than one-tenth of the position that perkins built up. As a result of this trading, the worldwide price of oil increased 1.65 cents, it was an incredible market phenomenon at the time, and oil traders around the world were baffled by it, usually a swing in oil prices that large and in that short of a period of Time would only be caused by major geopolitical events after his oil buying binge the price of oil immediately started to normalize by 7. Am it dropped by about half a dollar from its peak at about 6 30 a.m? Perkins sent a message to his managing director at pvm.

He said that a relative of his was sick and, as such he would not be able to come into the office for work. That day, about an hour later, an employee of pvm in the back office called him to ask which client the trades were for so they could be cleared. Perkins said that all the trades were for the same client that had authorized the first rate he had made 18 hours prior to that. At this point, perkins started dumping his futures contracts over the course of three hours from seven to ten.

Am he successfully dumped two and a half million barrels worth of oil futures on the market, reducing his long position that he held from seven thousand to four and a half thousand lots at 8? Am the compliance officer at pvm called perkins telling him to stop his trading activities? All further trades at that point should be made through the brent desk directly. He agreed but continued to trade anyway, at around 10, am his company became aware that his trading was unauthorized and suspended his access to the trading systems pvm's other traders then unloaded the remainder of the long position as a result of having to unwind such a big Position the firm took around 10 million worth of losses, not an insignificant amount of money for a firm of that size. After the incident, perkins was immediately fired by pvm. He was also investigated by the financial services authority, which was the british financial regulatory agency.

At the time they determined that perkins was not fit and proper to trade, the markets and that his actions, while drunk caught significant disturbances in the market that could be considered market manipulation. They also cited the fact that he repeatedly lied to his superiors and other employees at pvm when they contacted him about his trades during the incident. Although they confirmed that his only motives was that he was drunk, he nevertheless was found to pose an extreme risk to the markets while drunk they levy to find against him. For 150 000 british pounds likely much less than one year's total compensation for the senior broker.

However, perkins lawyers were able to somehow convince the agency that such a large fine would place undue financial hardship on perkins, and the fine was then reduced to less than half of that amount. In addition, he was given three years over which to pay the full amount in monthly installments. He was also ordered to undergo alcoholics rehabilitation and banned from trading for five years until his rehab was completed after getting fired from pvm in the embarrassment of a lifetime. Perkins was able to easily find another job as a commodity's futures broker.

Just two days after his penalty for the incident was announced publicly, he was hired by a large swiss biofuels brokerage called star supply renewables. They said that, despite his costly mistake to pvm, they believed that he was a good broker and just made a stupid mistake. They also claimed that they would not have perkins do any actual trading of his own for the five-year period during which he was banned from trading, and he would instead engage in training other traders at the company, the short period in which perkins was able to land. The job after his blunder just goes to show how valuable skilled and experienced commodities brokers are.

It also provides further evidence that the 150 000 pound fine, originally proposed against him by the fsa before it was reduced, probably would not have been an undue financial hardship for him. So that's the story of how a drunk trader put half a billion dollars of client capital at risk and ended up costing his firm 10 million dollars in losses. It's a miracle that the losses weren't even bigger than they were. If other market participants had full knowledge of what was going on with perkins during the incident, they may have been able to take advantage of the situation and extract more money from his huge position.

In the end, this story is just one more piece of evidence that, no matter how sophisticated, even the biggest players in the financial markets aren't immune to blunders. This one was especially embarrassing for mr perkins, alright guys that wraps it up for this video. If you enjoyed the content, make sure to smash that like button and subscribe for future videos also leave a comment saying what you would have done if you woke up one morning, realizing that you had drunkenly traded, half a billion dollars of someone else's money. In the meantime, thank you so much for watching and we'll see you in the next video wall street millennial, signing out.