Former RBS Bond Trader Pleads Guilty to Fraud

Adam Siegel, an ex-Royal Bank of Scotland Group Plc (RBS) bond trader, has plead guilty to fraud over his involvement in a multi-million dollar scheme in which he lied to customers so that they would pay higher prices for bonds. Siegel, 37, served as the co-head of RBS’s U.S. Asset-Backed Securities, Mortgage-Backed Securities and Commercial Mortgage-Backed Securities Trading groups. He supervised and traded fixed income investment securities, including collateralized loan obligations (CLOs) and residential mortgage-backed securities (RMBS).

According to prosecutors, Siegel and others lied about the asking price of sellers to buyers, as well as the price that buyers were willing to pay to sellers, while pocketing the difference. He made misrepresentations so that customers would pay higher prices while those selling bonds would end up getting deflated prices, both of which benefitted RBS.

Sometimes, he and co-conspirators would make misrepresentations to buyers by telling them that a fake third-party was selling the bonds. This allowed the firm to charge an unwarranted commission.

According to the probe, Siegel was involved in the fraud from 2008 to 2014. At least 35 customers, including firms connected to recipients of federal bailout funds through the Troubled Asset Relief Program, collectively ended up paying millions of dollars above the value of the investments because of this scam. Christy Romero, the Special Inspector General for TARP, said that Siegel took advantage of the inadequate transparency in the bond markets during the financial crisis by bilking RBS customers, as well as TARP banks. He pled guilty to conspiracy to commit securities fraud and he is cooperating with the government in its probe.

Siegel is not the only ex-Royal Bank of Scotland employee to enter a guilty plea in the government’s bond fraud investigation. In March, Matthew Katke, a CLO dealer, admitted to fraud and consented to cooperate with prosecutors. Siegel and Katke worked together not just at RBS but also previously at Bear Stearns (BSC). It was Siegel and others who trained Katke to trade CLOs. Siegel was Katke’s supervisor at RBS.

As part of their plea deals, the two men are allowed to withdraw their pleas if another man, ex-Jefferies & Co. trader Jesse Litvak, is found not to have broken the law. Litvak was convicted last year of bilking the federal government, making false statements. and lying to investors about the price of mortgage bonds. Prosecutors accused him of misleading customers, including those taking part in TARP’s Public-Private Investment Program, while helping his firm increase profits by $2.25 million and increasing his own income. Litvak was the first charged under a law banning fraud against the U.S. through TARP.

Earlier this month, an appeals court tossed the conviction, finding that Litvak should have been allowed to have experts testify that his actions were common on Wall Street. However, Circuit Judge Chester Straub also said that a “rational jury” could still have found that the misrepresentations Litvak is accused of making were “material” to investors. A retrial was ordered on 10 securities fraud charges.

Last year in a non-prosecution deal, Jefferies consented to pay $25 million to conclude the US’s investigation into its supervision of traders, including Litvak.

Ex-RBS Bond Trader Pleads Guilty as Bond Probe Widens, Bloomberg, December 21, 2015

Former Jefferies trader Litvak’s conviction overturned, Reuters, December 8, 2015