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ARTICLE · 22 AUGUST 2016

SEC Settles Charges Against Trader For Misleading RMBS Customers

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The SEC settled fraud charges against a former head trader of residential mortgage-backed securities ("RMBS").

United StatesFinance and Banking
Hogan Lovells Cadwalader
Hogan Lovells Cadwalader
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The SEC settled fraud charges against a former head trader of residential mortgage-backed securities ("RMBS").

The SEC found that the trader:

  • misled customers, with whom he was negotiating the sale of RMBS, on price and compensation; and
  • misrepresented the sale of the RMBS as out of his company's inventory rather than as a trade between customers.

In its Order, the SEC noted that because "RMBS are generally illiquid, and discovering a market price for them is difficult, . . . participants in the RMBS market rely on informal sources, such as the dealer with whom they trade, for this information." SEC Enforcement Division Complex Financial Instruments Unit Chief Michael J. Osnato emphasized that the trader breached investors' good faith:

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