Former Collateralized Mortgage Obligations Bond Trader Sentenced for Securities Fraud Scheme

Allison Tussey —  December 17, 2014 — 1 Comment

Douglas Green, 50, Boca Raton, Florida, a former collateralized mortgage obligation bond trader was sentenced to 30 months in prison for engaging in a fraudulent trading scheme in which he manipulated the prices of CMOs by millions of dollars over a period of four years.

The defendant previously pleaded guilty before U.S. District Judge Freda L. Wolfson to one count of securities fraud. Judge Wolfson imposed the sentence in Trenton, New Jersey,  federal court.

According to documents filed in this case and statements made in court:

From May 2004 through June 2008, Green was a registered representative associated with Crocker Securities, a broker dealer that used the clearing services of Pershing LLC. Pershing, which is based in Jersey City, New Jersey, is one of the largest clearing firms in the United States. As Crocker’s clearing firm, Pershing received payments and securities from Crocker and handled record-keeping for the securities Crocker controlled.

Green traded a Crocker account on behalf of the firm. In June 2004, the account Green managed suffered significant trading losses, which continued to grow during the length of the fraudulent scheme. To conceal the losses, Green entered into fraudulent transactions designed to increase the price of the CMOs to correspond to and cover the increasing losses in the Crocker trading account.

Green admitted that to manipulate the price of the CMO he entered a fraudulent sale into Pershing’s trading system. As the settlement date of the trade approached, Green cancelled the fraudulent sale so it would not actually settle and thereby alert Pershing and the purported purchasers, who were unaware they were identified in the fake transaction.

Green also manipulated the price of the CMOs using a network of bond traders. The traders purchased the CMOs at Green’s direction and immediately sold them back to him at slightly elevated prices. As a result of Green’s fraudulent trading activity, the total price of the CMOs was artificially inflated by millions of dollars. When the scheme collapsed, Pershing lost millions of dollars when it was forced to liquidate the CMO positions in the Crocker account.

In addition to the prison term, Judge Wolfson sentenced Green to three years of supervised release and ordered him to pay $9.2 million in restitution.

U.S. Attorney Paul J. Fishman announced the sentence.

U.S. Attorney Fishman credited special agents of the FBI, under the direction of Special Agent-in-Charge Aaron Ford, for the investigation which led to today’s sentence. He also thanked the Financial Industry Regulatory Authority for its assistance in the investigation.

The government is represented by Assistant U.S. Attorney Paul A. Murphy of the U.S. Attorney’s Office Economic Crimes Unit in Newark.

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Allison Tussey

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