In 1990 Scholes became more involved directly with the financial markets.
He went to Salomon Brothers as a special consultant, then becoming a managing director and co-head of its fixed-income-derivative group.
In 1994 Scholes joined several colleagues, including John Meriwether, the former vice-chairman and head of bond trading at Salomon Brothers, and his future Nobel Prize co-winner Robert C. Merton, and co-founded a hedge fund called Long-Term Capital Management (LTCM).
The fund, which started operations with $1 billion of investor capital, performed extremely well in the first years, realizing annualized returns of over 40%.
However, following the 1997 Asian financial crisis and the 1998 Russian financial crisis the highly leveraged fund in 1998 lost $4.6 billion in less than four months and collapsed abruptly, becoming one of the most prominent examples of risk potential in the investment industry.

LTCM brought legal problems for Scholes in 2005 in the case of Long-Term Capital Holdings v. United States.
The firm's corporate structure and accounting had established an offshore tax shelter to avoid taxes on investment profits.
Courts disallowed the firm's claim of $40 million in tax savings, finding it based on formal accounting losses of $106 million that represented no economic substance.
In 1990 Scholes became more involved directly with the financial markets. He went to Salomon Brothers as a special consultant, then becoming a managing director and co-head of its fixed-income-derivative group. In 1994 Scholes joined several colleagues, including John Meriwether, the former vice-chairman and head of bond trading at Salomon Brothers, and his future Nobel Prize co-winner Robert C. Merton, and co-founded a hedge fund called Long-Term Capital Management (LTCM). The fund, which started operations with $1 billion of investor capital, performed extremely well in the first years, realizing annualized returns of over 40%. However, following the 1997 Asian financial crisis and the 1998 Russian financial crisis the highly leveraged fund in 1998 lost $4.6 billion in less than four months and collapsed abruptly, becoming one of the most prominent examples of risk potential in the investment industry.
LTCM brought legal problems for Scholes in 2005 in the case of Long-Term Capital Holdings v. United States. The firm's corporate structure and accounting had established an offshore tax shelter to avoid taxes on investment profits. Courts disallowed the firm's claim of $40 million in tax savings, finding it based on formal accounting losses of $106 million that represented no economic substance.
Myron Scholes