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Day: August 18, 2016

Bond Trader Fined and Barred for Misleading Customers about Prices


A bond trader was barred from the industry and agreed to pay $400,000 in fines, disgorgement and interest for misleading customers about non-agency RMBS prices.  The SEC charges that the respondent, the head RMBS trader at a large investment bank, would convince customers to buy bonds at higher prices by misleading them about the other side of the trades.  The SEC alleges that the respondent used tactics such as (i) convincing the buyer that he was in active negotiations when the bond was already in inventory, (ii) claiming that his firm was not making any compensation when it was making a spread, and (iii) creating a sense of urgency by implying that other buyers were interested.  The SEC cites violations of Section 10(b) and Rule 10b-5.  An SEC official explained, “[I]nvestors purchasing these securities rely on dealers to be honest about the purchase price they paid,” but the respondent “repeatedly abused his fundamental duty to serve as an honest transmitter of market information so he could increase” his employer’s profit and his own compensation.

OUR TAKE: Back in the bad old days (pre-2008?), a bond trader would not likely have worried about an enforcement action (or an industry bar) for doing whatever he could to obtain a better price for his firm.  This isn’t the bad old days.   The new SEC believes all market participants have a fiduciary role and will prosecute a purported misrepresentation as a 10b-5 violation.