Traders Face Civil and Criminal Charges for Lying to Customers about RMBS Prices
Three residential mortgage-backed securities traders face both SEC and criminal charges for lying to customers about RMBS prices and compensation received. According to the SEC, the defendants, senior traders at a large investment bank, lied to customers about prices paid for RMBS securities in riskless principal transactions, thereby earning over $7 Million in additional trading revenue for their employer. The SEC asserts that this additional revenue was a factor in three defendants’ bonus compensation. Additionally, the SEC charges the defendants with creating a fraudulent culture whereby they trained and instructed junior traders to similarly lie to customers. As part of its investigation, the SEC has “entered into deferred prosecution agreements (DPAs) with three other individuals who have extensively cooperated with the SEC’s investigation and provide enforcement staff with access to critical evidence that otherwise would not have been available.”
OUR TAKE: The SEC’s use of deferred prosecution agreements to encourage (former) co-workers to cooperate in investigations is a powerful enforcement tools against potential wrongdoers convinced that they won’t get caught.