Goldman Sachs junk-bond trader Tom Malafronte, a managing director on the bank’s high-yield-bond desk in New York, turned “Junk Into Gold” - a throwback to an earlier era on Wall Street when proprietary traders reigned supreme.

Malafronte earned more than $100 million in trading profits for the firm earlier this year - an unusual occurrence at a time when new regulations have pushed Wall Street to take fewer risks.  Nevertheless, the 34-year-old trader bought billions of dollars in junk corporate debt on the cheap starting in January, then locked in profits as prices recovered.

The government permits banks to continue trading securities – but only in a market-making capacity, and the banks must show that the amount of bonds and other securities held on their balance sheets don’t exceed what they need to meet “reasonably expected near-term demand.”

As a market maker, Mr. Malafronte bought the bonds from clients anxious to sell them and ultimately lined up other investors to buy them - at a higher price. Goldman profited from the difference, people familiar with the matter said.

It is difficult - if not impossible - to define clearly the difference between trades made to meet clients’ demands and those conducted just to make money, said Hal Scott, a Harvard Law professor.  “No one has been able to distinguish between market making and prop trading,” Mr. Scott said.

Mr. Malafronte’s haul lands squarely in the center of a debate about the role of banks, which are eager to show that they are putting clients’ interests ahead of their own while at the same time scrambling to capitalize on a dwindling number of profit-making opportunities.

Stay tuned – a government investigation is likely to crop up.