RBS Trader Admits Defrauding Customers in Multimillion Dollar Securities Fraud Scheme
U.S. Attorney Deirdre M. Daly of the District of Connecticut, Special Inspector General Christy Romero for the Troubled Asset Relief Program (SIGTARP) and Special Agent in Charge Patricia M. Ferrick of the FBI’s New Haven Division announced that Matthew Katke, 34, of New York City, waived his right to indictment and pleaded guilty today in Hartford federal court to participating in a multimillion securities fraud scheme. Katke also entered into an agreement to cooperate in the government’s ongoing investigation.
According to court documents and statements made in court, between April 2008 and August 2013, Katke was a registered broker-dealer and managing director at RBS Securities Inc. RBS is a global securities firm with headquarters in Stamford, Connecticut. RBS also has a trading floor in Stamford, where Katke and other members of RBS’s Asset Backed Products division traded fixed income investment securities such as residential mortgage-backed securities (RMBS) and collateralized loan obligations (CLOs). In pleading guilty, Katke admitted that he and others conspired to increase RBS’s profits on CLO bond trades at the expense of customers. As part of the scheme, Katke and his co-conspirators made misrepresentations to induce buying customers to pay inflated prices and selling customers to accept deflated prices for CLO bonds, all to benefit RBS.
The conspiracy was perpetrated in two ways. In certain transactions, Katke misrepresented the CLO seller’s asking price to the buyer (or vice versa), keeping the difference between the price paid by the buyer and the price paid to the seller for RBS. In other transactions, Katke misrepresented to the CLO buyer that bonds held in RBS’s inventory were being offered for sale by a fictitious third-party seller invented by Katke, which allowed Katke to charge the buyer an extra commission that RBS was not entitled to.
The investigation revealed numerous fraudulent transactions by Katke that cost at least 20 victim customers, including firms affiliated with recipients of federal bailout funds through the Troubled Asset Relief Program, millions of dollars.
“Fraud in the fixed income markets is a secret and unfair tax on investors everywhere,” said U.S. Attorney Daly. “Broker-dealers, and the people who work for them, need to understand that a market practice that is at odds with the securities law is a crime that carries serious repercussions. We urge others to follow Mr. Katke’s example and cooperate with investigators. We want to thank SIGTARP and the FBI for their efforts to date in this continuing investigation. Additionally, we acknowledge our other partners at the Department of Labor Office of the Inspector General, the Federal Housing Finance Administration Office of Inspector General and the Fraud Section of the Department of Justice for their hard work in the numerous ongoing investigations into this market.”
“As a result of an ongoing criminal investigation by SIGTARP, this afternoon, Katke, a former senior securities trader at investment bank RBS, pleaded guilty to conspiring to defraud bank customers—customers that included TARP banks—out of millions of dollars,” said Special Inspector General Romero. “Katke lied to customers about the status of and the true prices paid and offered for securities as a way to boost profits for himself, others and RBS. Defrauding a TARP recipient bank is the same as defrauding the American taxpayers who funded the TARP bailout. I want to commend U.S. Attorney Daly and the team of prosecutors who stand united with SIGTARP to combat TARP bailout-related crime.”
Katke pleaded guilty to one count of conspiracy to commit securities fraud, which carries a maximum term of imprisonment of five years. He was released on a $250,000 bond and is scheduled to be sentenced by U.S. District Judge Robert N. Chatigny of the District of Connecticut on June 3, 2015.
This case is being investigated by the FBI and the Special Inspector General for the Troubled Asset Relief Program, and is being prosecuted by Assistant U.S. Attorneys Jonathan Francis and Heather Cherry of the District of Connecticut.
Today’s announcement is part of the ongoing efforts of the Financial Fraud Enforcement Task Force’s Residential Mortgage-Backed Securities (RMBS) Working Group, a federal and state law enforcement effort focused on investigating fraud and abuse in the RMBS market that helped lead to the 2008 financial crisis and the federal government’s subsequent bailout. The RMBS Working Group brings together attorneys, investigators, analysts and staff from dozens of state and federal agencies including the Department of Justice, U.S. Attorneys’ Offices, the FBI, the Securities and Exchange Commission (SEC), the Department of Housing and Urban Development (HUD), HUD’s Office of Inspector General, the FHFA-OIG, SIGTARP, the Federal Reserve Board’s Office of Inspector General, the Recovery Accountability and Transparency Board, the Financial Crimes Enforcement Network and state Attorneys General offices around the country.
The RMBS Working Group is led by Acting Associate Attorney General Stuart Delery, and co-chaired by Assistant Attorney General Leslie R. Caldwell of the Criminal Division, Acting Assistant Attorney General Benjamin Mizer of the Civil Division, Director of Enforcement Andrew Ceresney for the SEC, U.S. Attorney John Walsh of the District of Colorado and New York Attorney General Eric T. Schneiderman.
For more information about the RMBS Working Group and the Financial Fraud Enforcement Task Force, visit: www.stopfraud.gov.