Former bond trader admits to $9 million manipulative trading scheme involving collateralized mortgage obligation bonds
FOR IMMEDIATE RELEASE
April 7, 2011
TRENTON, N.J. – A former collateralized mortgage obligation (“CMO”) bond trader admitted today to engaging in a fraudulent trading scheme in which he manipulated the prices of CMOs by millions of dollars over a four-year period, U.S. Attorney Paul J. Fishman announced.
Douglas Green, 47, of Parkland, Fla., pleaded guilty to one count of securities fraud before U.S. District Judge Freda L. Wolfson in Trenton federal court.
According to the Information to which Green pleaded guilty and statements made in court:
From May 2004 through July 2008, Green was a registered representative associated with Crocker Securities, a broker dealer that used the clearing services of Pershing LLC. Pershing, which is based in Jersey City, N.J., is one of the largest clearing firms in the United States. As Crocker’s clearing firm, Pershing received payments and securities from Crocker, and handled record keeping for the securities Crocker controlled.
During the period of the fraud, Green traded a Crocker account on behalf of the firm. In approximately June 2004, the account Green managed suffered significant trading losses which continued to grow during the length of the fraudulent scheme. In order to conceal the losses, Green entered into fraudulent transactions to increase the price of the CMOs to correspond to the increasing losses in the Crocker trading account.
Green admitted that, to manipulate the price of the CMO, he entered a fraudulent sale into Pershing’s trading system. As the settlement date of the trade approached, Green cancelled the fraudulent sale so it would not actually settle and thereby alert Pershing and the purported purchasers, who were unaware they were identified in the fake transaction.
Green also manipulated the price of the CMOs using a network of bond traders. The traders purchased the CMOs at Green’s direction and immediately sold them back to him at slightly elevated prices. As a result of Green’s fraudulent trading activity, the total price of the CMOs was artificially inflated by millions of dollars. When the scheme collapsed, Pershing lost more than $9 million when it was forced to liquidate the CMO positions in the Crocker account.
The securities fraud charge to which Green pleaded guilty carries a maximum potential penalty of 20 years in prison and a $5 million fine. Green’s sentencing is currently scheduled for July 22, 2011.
U.S. Attorney Fishman stated: “Green engaged in a multimillion-dollar cover up. He manipulated prices of CMOs to conceal major trading losses by creating fictitious transactions at artificial prices. As a result of Green’s deception, Pershing lost approximately $9 million, and the public lost its right to fairness and transparency in the market.”
Fishman credited special agents of the FBI, under the direction of Special Agent in Charge Michael B. Ward, for the investigation which led to today’s plea. Fishman also thanked the Financial Industry Regulatory Authority for its assistance in the investigation.
The government is represented by Assistant U.S. Attorney Justin W. Arnold of the United States Attorney’s Office’s Economic Crimes Unit in Newark.
This case was brought in coordination with President Barack Obama’s Financial Fraud Enforcement Task Force. President Obama established the interagency Financial Fraud Enforcement Task Force to wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes. The task force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources. The task force is working to improve efforts across the federal executive branch, and with state and local partners, to investigate and prosecute significant financial crimes, ensure just and effective punishment for those who perpetrate financial crimes, combat discrimination in the lending and financial markets, and recover proceeds for victims of financial crimes.
Defense counsel: Jeffrey Cox, Esq. - Boca Raton, Fla.