Investor Lawyers Blog
Jennifer Kim, an ex-Morgan Stanley trader, will pay $25,000 and is barred from broker-dealer association for three years in her settlement with the SEC regarding its claim that she concealed trades and falsified books. The firm’s risk limits were exceeded by the proprietary trades she concealed, intending to cancel the swap orders almost immediately. This action “tricked” the firm’s monitoring systems, allowing the swaps to go through. At this time, Kim was acting as the risk manager for both her trading account and her supervisor’s proprietary account.
In late September 2009, Larry Feinblum, Jennifer Kim’s immediate supervisor at the Swaps Desk, was told by his supervisor that their net risk position in the Wipro account was too high at $20 million, and should not be increased. Regardless, by October 6 Winpro’s net aggregate risk had reached $50 million. Kim and Feinblum brought the risk position down again, but by November, it had increased once more to $30 million and the two devised a scheme in which they booked swaps that would reduce the net risk position, falsely verified them, and then canceled the swaps, returning the risk to its higher position. In this way, they were able to fool the firm’s risk assessment program into believing the account was within acceptable risk limitations.
On December 16, 2009, the misconduct of Kim and Feinblum was exposed when Feinblum admitted to his supervisor that in only one day he had lost $7 million. Furthermore, on December 17, he admitted that he, along with Kim, had hidden exceeded risk limits. As a result of this confession, Feinblum and Kim were subsequently terminated on January 4, 2010. Feinblum settled for $150,000 on May 31 for related claims.
Together with Feinblum, Kim committed broker misconduct in the form of these “fake” swap orders a minimum of 32 times between October and December 2009. As a result of this deception, Morgan Stanley lost around $24.5 million. Luis Aguilar, the SEC’s Commissioner, stated that Kim’s $25,000 settlement was “inadequate.”
According to the SEC’s report, Kim’s misconduct “violated Section 13(b)(5) of the Exchange Act, which prohibits persons from knowingly circumventing or knowingly failing to implement a system of internal accounting controls or knowingly falsifying any book, record, or account.” Neither Kim nor Feinblum admitted or denied any wrongdoing.