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Financial Services Law Insights and Observations

Global Securities Firm Agrees to Pay Million Dollar Penalty Related to Alleged Securities Fraud Scheme

Federal Issues RMBS Mortgages Investigations

Federal Issues

On October 26, the United States Attorney for the District of Connecticut announced a non-prosecution agreement between the office and a global securities firm. The resolution was a result of a government investigation, which concluded that the firm perpetrated a scheme to defraud its customers in trades of residential mortgage-backed securities (RMBS) and collateralized loan obligations (CLOs) between 2008 and 2013. Specifically, the investigation alleges that the firm, (i) misrepresented material facts in trades and monetarily benefited from the misrepresentations; (ii) instructed traders to use fraudulent trading practices; (iii) lied to affected customers who suspected the fraudulent activity; (iv) ignored complaints from its own employees regarding the fraudulent activity; (v) deceived rival broker-dealers in trades by using a purportedly independent propriety trading operation; and (vi) concealed the fraudulent conduct from customers and employees in order to prevent or delay discovery.

The agreement, which was entered into on October 25, requires that the firm pay a $35 million monetary penalty and pay around $9 million in restitution to affected customers.

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