Unauthorized Trading

Published on: November 3, 2011

What is a “Rogue Trader?”

The term “rogue trader” has been used in recent news and often accompanies reports of catastrophic losses. According to the San Francisco Chronicle, “a rogue trader is a trader who takes unauthorized investing risks to attempt massive gains, but makes reckless choices in the process.” Therefore, action taken against a rogue trader by a stock fraud lawyer can involve accusations of unauthorized trading and/or unsuitable investments. In addition, rogue traders can face criminal charges for breach of trust, collusion and fraud if caught.

What is a “Rogue Trader?”

The actions made by rogue traders are unethical in that they act outside of the authorization of their supervisors or companies and/or do not trade within the limits that have been set for them. Company rules and government regulations are often of no concern to a rogue trader — at least not until they are caught.

The bane of a rogue trader’s existence is a sudden and major loss that results from their risky behavior. Though this is detrimental to the trader, it is also a major concern for the company they work for, as well as their clients. Another danger to the success of a rogue trader is the attention of regulatory authorities and the reporting of their behavior by a co-worker. This is one reason why regulations within companies that encourage employee reporting are critical. Rogue traders can do extensive damage to the company they work for, as well as the company’s executives and share price.

Published on: August 14, 2011

CITIGROUP FINED $500,000 BY FINRA

by InvestorLawyers

The Financial Industry Regulatory Authority (FINRA) announced on August 9, 2011, its decision to fine Citigroup Global Markets Inc. for failing to supervise one of its former registered sales assistants, Tamara Moon. Moon was employed at Citigroup’s Palo Alto, California, office and misappropriated a total of $749,978 over 8 years. In addition, she engaged in unauthorized trading and falsified account records. Moon’s discretions were made possible by Citigroup’s supervisory lapses, according to FINRA’s securities arbitration proceedings.

Citigroup fined $500,000 by finra

FINRA’s decision to fine Citigroup comes just under two years after its decision to bar Moon, which was announced on August 25, 2009. In connection with that decision, Susan L. Merrill, FINRA’s Executive Vice President and Chief of Enforcement at that time, said, “Firms have an obligation to supervise all of their personnel, including sales assistants who have access to confidential customer account information.” Current FINRA Executive Vice President and Chief of Enforcement Brad Bennett said, “Tamara Moon used her knowledge of Citigroup’s lax supervisory practices at the branch to take advantage of some of the firm’s most vulnerable customers, including the elderly. Citigroup had reason to know what she was doing and could have stopped her.”

Moon’s 22 victims consisted of individuals she thought were unable to properly monitor their accounts and included the elderly and the ill. In one case, Moon created a fake account for her father and used the account to misappropriate $30,000 of her own father’s money and $250,000 of other Citigroup customers’ money. Setting up and maintaining this account required Moon to forge her father’s signature multiple times. In another case, Moon stole $26,000 from an elderly widow by moving money from the widow’s account to other accounts, including some owned by Moon and some owned by other Citigroup customers, without authorization.

Published on: August 9, 2011

SKY CAPITAL FOUNDER MANDELL AND BROKER HARRINGTON FOUND GUILTY

by InvestorLawyers

This July, a jury found Sky Capital founder Ross Mandell and ex-broker Adam Harrington guilty of securities fraud and conspiracy. Allegedly topping $140 million, the stock broker fraud occurred between 1998 and 2006, according to prosecutors. Preet Bharara, Manhattan U.S. attorney, stated that Mandell and Harrington are, “masters of deception who had no qualms about lying to investors, manipulating stock prices, and using dubious trading practices to enrich themselves at the expense of their victims.”

Sky Capital Founder, Mandell, and Broker, Harrington, Found Guilty

In 2005, Forbes Magazine nicknamed Mandell Wall Street’s “bad boy broker” and it’s no wonder, with the bad publicity Sky Capital has received. A Forbes article released in July of 2011 by Walter Pavlo describes “the low bar of becoming a stockbroker” at Sky Capital. McKyle Clyburn, a witness at Mandell’s trial, described how he lied about his name, age and “pretty much everything” when first becoming a stock broker and then found himself a home at Sky Capital — despite his aversion to reading and writing and his drug abuse — making sometimes as much as $750,000 a year. He also stated that using margin trades to burn through a client’s money to earn himself commissions was common at Sky Capital. Clyburn is one of four former Sky Capital employees to plead guilty to criminal charges and then testify to their broker misconduct at Mandell and Harrington’s trial.

The trial lasted five weeks and testimonies like Clyburn’s exhibited the kind of lifestyle that Sky Capital brokers enjoyed at the expense of their clients. According to the Wall Street Journal, evidence introduced by prosecutors also showed that over $162,000 of Sky Capital investors’ money went to “adult entertainment expenses.” Attorneys for both Mandell and Harrington say they will appeal.