FINRA is fining Guggenheim Securities, LLC $800,000 for allegedly not supervising two collateralized debt obligation traders accused of hiding a trading loss. The traders are Alexander Rekeda and Timothy Day. Rekeda, who is the financial firm\u2019s ex-CDO Desk head, has to pay $50,000 and is suspended for a year. Day\u2019s fine is $20,000 and he received a four month suspension. By settling, none of the parties are denying or admitting to the FINRA securities charges.<\/p>\n
Due to a failed trade, the CDO Desk at Guggenheim acquired a \u20ac5,000,000 junk-rated tranche of a CLO in October 2008. When the desk was unable to sell the position, Rekeda and Day convinced a hedged fund client to buy the collateralized loan obligation for $950,000 more than it had initially agreed to pay by misrepresenting the CLA. FINRA said that to conceal the CLO position\u2019s trading loss, the two traders gave the customer order tickets that upped the CLO position\u2019s price and lowered the price of other positions. Day, allegedly at Rekeda\u2019s order, is accused of lying to the client when the latter asked about the price modifications by saying that the CLO position had a third-party seller that had settled the trade at a higher price and wanted the customer to pay this rate. The client agreed, and, in exchange, Day and Rekeda said that they would compensate the customer via other transactions, including waiving the fees owed related to resecuritization transactions, adjusting the prices on several other CLO trades, and providing a payment in cash. No records, however, indicate that these transactions were related to the CLO overpayment.<\/p>\n
In other FINRA securities news, the U.S. Court of Appeals for the Eighth Circuit has affirmed a district court\u2019s ruling that a broker-dealer that acted as the managing broker-dealer in a Tenant in Common securities cannot be compelled to arbitrate claims filed by investors of the failed enterprise. In Berthel Fisher & Co. Financial Services Inc. v. Larmon<\/em>, Judge Michael Melloy agreed that for the SRO\u2019s purposes, the investors are not the financial firm\u2019s \u201ccustomers.\u201d<\/p>\n