FORMER HEAD RMBS TRADER AT GOLDMAN SACHS SETTLES FRAUD CHARGES

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Former Goldman Sachs Trader Settles Fraud Charges

FOR IMMEDIATE RELEASE

2016-163

Washington D.C., Aug. 16, 2016 — The Securities and Exchange Commission today announced that the former head trader in residential mortgage-backed securities (RMBS) at Goldman Sachs has agreed to be barred from the securities industry and pay $400,000 to settle charges that he repeatedly misled customers and caused them to pay higher prices.

An SEC investigation found that Edwin Chin generated extra revenue for Goldman by concealing the prices at which the firm had bought various RMBS, then re-selling them at higher prices to the buying customer with Goldman keeping the difference.  On other occasions, Chin misled purchasers by suggesting he was actively negotiating a transaction between customers when he was merely selling RMBS out of Goldman’s inventory.

“With no public exchange showing the price for each RMBS trade as it occurs, investors purchasing these securities rely on dealers to be honest about the purchase price they paid,” said Michael J. Osnato, Chief of the SEC Enforcement Division’s Complex Financial Instruments Unit.  “Chin repeatedly abused his fundamental duty to serve as an honest transmitter of market information so he could increase Goldman’s trading profits and, indirectly, his own compensation.”

The SEC’s order finds that Chin’s misconduct began in 2010 and continued until he left Goldman in 2012.  Without admitting or denying the findings, Chin agreed to the entry of the order finding that he violated Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5.  He agreed to pay $200,000 in disgorgement, $50,000 in prejudgment interest, and a $150,000 penalty.

The SEC’s continuing investigation has been conducted by Andrew Feller, David London, and Heidi Mitza, and the case has been supervised by Celia Moore and Michael Osnato.

MORTGAGE-BACKED SECURITIES DEALER SENTENCED TO PRISON

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Connecticut-Based Broker-Dealer Representative Sentenced to Two Years in Prison for Defrauding Investors in Mortgage-Backed Securities

SEC's Enforcement Division Institutes Proceedings to Determine Whether to Bar Him From Securities Industry

The Securities and Exchange Commission announced today that Jesse Litvak, a former managing director of Jefferies & Co., Inc. (Jefferies), a New York-based broker-dealer, was sentenced to 24 months in prison followed by three years of supervised release and a fine of $1,750,000 following his conviction on 10 counts of securities fraud, one count of Troubled Asset Relief Program (TARP) fraud, and four counts of making false statements. The judgment of conviction was entered against Litvak on July 25, 2014. Based on that judgment, the SEC's Enforcement Division instituted administrative proceedings against Litvak on September 2, 2014 to determine what, if any, remedial action is appropriate in the public interest against Litvak. Such action could include a bar from the securities industry.

The SEC had also charged Litvak separately in a civil action with making misrepresentations and engaging in misleading conduct while he sold mortgage-backed securities (MBS) in the wake of the financial crisis. The Commission's civil action against Litvak remains pending. In its civil complaint filed in District Court for the District of Connecticut on January 28, 2013, the SEC alleged that Litvak, a senior trader on Jefferies' MBS Desk who worked at Jefferies' office in Stamford, Connecticut, bought and sold MBS from and to his customers. According to the SEC's civil complaint, on numerous occasions from 2009 to 2011, Litvak lied to, or otherwise misled, those customers about the price at which Jefferies had purchased the MBS before selling it to another customer and the amount of his firm's compensation for arranging the trades. The SEC alleged that, on some occasions, Litvak also misled his customer into believing that he was arranging a MBS trade between customers, when Litvak really was selling the MBS out of Jefferies' inventory. According to the SEC's civil complaint, Litvak also misled customers about how much money they were paying in compensation to Jefferies. The customers included investment funds established by the United States government in the wake of the financial crisis to help support the market for MBS as well as other investment funds, including hedge funds.

The SEC's complaint charged Litvak with violating the antifraud provisions of the federal securities laws, particularly Section 10(b) of the Securities and Exchange Act of 1934 and Rule 10b-5 thereunder, and Section 17(a) of the Securities Act of 1933. The SEC's action has been stayed pending the outcome of the criminal proceedings.