WASHINGTON – One former Kildare Capital employee has been banned from the market and another was hit with a $25,000 fine and 12-month ban after FINRA found that they artificially inflated interdealer prices for municipal securities through 25 round-trip transactions.
FINRA also charged another former Kildare employee, William Jordan, with fraudulently and deceptively engaging in a scheme involving seven round-trip transactions.
The two individuals facing bans, Edward Manges and David Joyce, both settled with FINRA without admitting or denying the findings. They both voluntarily left Kildare on Jan. 17, 2014, according to FINRA.
Jordan did not settle and the charges, opting instead to go before a FINRA hearing panel. FINRA is asking the panel to order Jordan to disgorge any ill-gotten gains and to impose any other penalties the panel deems reasonable, such as a fine.
Each of the individuals worked in Kildare's Philadelphia office during the periods of time referenced in the settlements and complaint.
FINRA found that Manges, who is now barred from the market, executed 24 round-trip transactions, each of which was carried out nearly simultaneously and without a beneficial change in ownership. The trades took place between May 1, 2009 and June 30, 2011. Manges set the transaction prices in the 24 transactions at prices that were from 0.5 to 13.85 points higher than his initial acquisition costs, according to the self-regulator.
Manges ultimately made a profit of about $208,630 from the 24 round-trip transactions, FINRA discovered. The self-regulator found that his actions violated Municipal Securities Rulemaking Board Rule G-17 on fair dealing as well as Securities and Exchange Act Section 10(b) and Rule 10(b)-5 on fraud.
When asked about the transactions, Manges told FINRA that an interdealer broker had conducted bid wanted auctions for the bonds traded in the transactions and that the transactions were meant to pay the broker a nominal commission for its efforts, according to the settlement document.
FINRA found that the interdealer broker never conducted bid-wanted auctions for Manges, meaning Manges violated FINRA Rules 8210 on providing information for examinations and 2010 on standards of conduct.
Joyce similarly violated MSRB Rule G-17 and FINRA Rules 8210 and 2010 while executing one, nearly simultaneous round-trip transaction with no apparent change in beneficial ownership. Beginning on July 7, 2010 Joyce purchased 160 bonds at 85.278 on an alternative trading system (ATS), according to FINRA. A week later, he agreed to a pre-arranged, round-trip transaction in the bonds with an interdealer broker. Within a two-second period, another Kildare trader, with Joyce's agreement, sold 100 bonds to the interdealer broker at 91.561 and repurchased them at 91.811. Joyce ultimately sold the bonds on July 23 on an ATS in three separate transactions at prices ranging from 90.05 to 94.651, for a profit of $12,076.
He, like Manges, wrote in a signed statement that the transaction was to give the interdealer broker compensation after a failed bid-wanted, but later acknowledged to FINRA that his statement was false.
His $25,000 fine is the result of a $15,000 fine for the FINRA violations and a $10,000 fine for the Rule G-17 violation. Eleven months of the one-year suspension are due to his FINRA violations.
In its complaint against Jordan, FINRA alleges that he engaged in six round-trip transactions that were executed at higher prices than his acquisition cost before he sold the securities to Kildare's customers. He was able to disguise his real markups through the conduct, FINRA said. His seventh round-trip transaction with an interdealer broker was at a price above the prevailing market price and was carried out in an attempt to avoid a loss, according to the self-regulator.
The former Kildare employee oversaw the transactions between November 2009 and August 2011.
He did not disclose the seven pre-arranged transactions to customers or other market participants but they were reported to the MSRB's Real-time Trade Reporting System and publicly disseminated through the EMMA system, according to FINRA.
In total, Jordan made approximately $66,494 in undisclosed profits through the seven transactions, the complaint alleges.
FINRA found that Jordan's actions violated MSRB Rule G-30 on prices and commissions and G-14 on reports of sales or purchases as well as G-17.
Jordan also falsely told FINRA that the transactions were done to compensate the interdealer broker for providing valuable services to himself and Kildare, the self-regulator said, meaning he also violated FINRA Rules 8210 and 2010.
