WASHINGTON--(BUSINESS WIRE)-- The Financial Industry Regulatory Authority (FINRA) announced today that it has fined Guggenheim Securities, LLC of New York $800,000 for failing to supervise two collateralized debt obligation (CDO) traders who engaged in activities to hide a trading loss. FINRA sanctioned the two traders: Alexander Rekeda, the former head of Guggenheim’s CDO Desk, was suspended for one year and fined $50,000; Timothy Day, a trader on Guggenheim’s CDO Desk, was suspended for four months and fined $20,000.
Brad Bennett, FINRA’s Vice President and Chief of Enforcement, said, “Guggenheim’s inadequate supervision allowed their traders to engage in extensive and repeated inappropriate actions to try to conceal a trading loss. The traders deceived their customer and supported their scheme through the use of inaccurate books and records, all of which went undetected by the firm.”
In October 2008, as the result of a failed trade, Guggenheim’s CDO Desk acquired a €5,000,000 junk-rated tranche of a collateralized loan obligation (CLO). After unsuccessful attempts by Guggenheim’s CDO Desk to sell the position, Rekeda and Day persuaded a hedge fund customer to purchase the CLO for $950,000 more than it had previously agreed to pay by falsely presenting the CLO as part of a package of securities a third party offered for sale. FINRA found that in an attempt to hide the trading loss on the CLO position, the traders provided the customer with order tickets that increased the price for the CLO position and decreased the price of the other positions that were part of the transaction. When the customer inquired about the pricing adjustments, Day, at Rekeda’s direction, lied and said a third-party seller of the CLO position had already settled the trade at a higher price and requested the customer pay this higher price. The customer agreed to overpay for the CLO and in return, Day and Rekeda agreed to compensate the customer through other transactions, including pricing adjustments on six other CLO trades, a waiver of fees the customer owed in connection with resecuritization transactions, and a cash payment to the customer. The records created to document the transactions did not indicate any connection to the overpayment for the CLO.
FINRA found Guggenheim failed to conduct adequate review of the CDO Desk’s trades, documentation concerning transactions by traders on the desk, and the traders’ email communications.
In concluding the settlement, Guggenheim, Rekeda, and Day neither admitted nor denied the charges, but consented to the entry of FINRA's findings. As part of the settlement, Guggenheim must retain an independent consultant to review and make recommendations concerning the adequacy of its supervisory procedures.
FINRA’s investigation was conducted by Thomas Kimbrell and Daniel Gardner, under the supervision of Joshua Doolittle and Thomas Lawson.
Investors can obtain more information about, and the disciplinary record of, any FINRA-registered broker or brokerage firm by using FINRA's BrokerCheck. FINRA makes BrokerCheck available at no charge. In 2011, members of the public used this service to conduct 14.2 million reviews of broker or firm records. Investors can access BrokerCheck at www.finra.org/brokercheck or by calling (800) 289-9999. Investors may find copies of this disciplinary action as well as other disciplinary documents in FINRA's Disciplinary Actions Online database.
FINRA, the Financial Industry Regulatory Authority, is the largest independent regulator for all securities firms doing business in the United States. FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services. FINRA touches virtually every aspect of the securities business – from registering and educating all industry participants to examining securities firms, writing rules, enforcing those rules and the federal securities laws, informing and educating the investing public, providing trade reporting and other industry utilities, and administering the largest dispute resolution forum for investors and firms. For more information, please visit www.finra.org.
Source: Financial Industry Regulatory Authority (FINRA)