October 2, 2015
Sometimes you just can't win . . . or, perhaps for the purpose of today's BrokeAndBroker.com Blog, I should say sometimes you just can't lose. I mean, go figure, FINRA bars some poor bond trader just because the guy came up with a system that ensured profits for his trades. Okay, sure, his system also ensured off-setting losses for his firm's trades but, after all is said and done, ya can't make everyone happy all the time, right?
Case In Point
For the purpose of proposing a settlement of rule violations alleged by the Financial Industry Regulatory Authority ("FINRA"), without admitting or denying the findings, prior to a regulatory hearing, and without an adjudication of any issue, Matthew P. Schulman submitted a Letter of Acceptance, Waiver and Consent ("AWC"), which FINRA accepted. In the Matter of Matthew P. Schulman, Respondent (AWC 2015045654001, September 16, 2015).
Schulman was first registered in 1998 and from June 2006 through May 2015, he was registered with FINRA member firm Vandham Securities Corporation . The AWC asserts that Schulman had no prior relevant formal disciplinary history with the Securities and Exchange Commission, any self-regulatory organization or any state securities regulator.
Stacking the Deck
The AWC asserts that starting around December 2014 and running through approximately May 2015, Schulman was a bond trader for Vandham where he was authorized to trade in the firm's proprietary account. During the cited timeframe, Schulman also maintained a personal account at Vandham subject to the firm's requirement that he obtain prior approval for all personal trades via a Pre-Approval Form for Personal Account Trades on which the trade details such as quantity and price were to be disclosed.
The AWC asserts that during the relevant period, Schulman effected approximately 23 bond transactions between his personal account and Vandham's proprietary account through which he caused the proprietary account to sells bonds to his personal account and, shortly thereafter, he caused the proprietary account to repurchase the sold bonds at a higher price. The AWC alleges that because Schulman was entrusted with determing the prices at which the proprietary account would sell/pay for bonds, he was able to obtain for his personal account a "disproportionate financial gain" to the detriment of the firm.
In characterizing the cited trades as "one-sided," the AWC notes that in some instances, Schulman paid about 50% less to buy a bond from the prop account versus what that account had paid. Moreover, the AWC further asserts that in some instances, Schulman charged the the prop account at least 500% to buy a bond from his personal account versus what he had previously paid the firm for the bond. In total, the AWC alleges that Schulman's scheme yielded about $30,000 in profits to him at the expense of Vandham.
Deal Him Out
On May 20,2015, Vandham filed a Uniform Termination Notice for Securities Industry
Registration ("Form U5") terminating Schulman's registration with the Firm.
FINRA deemed Schulman's conduct to constitute violations of Section 10(b) of the '34 Act and Rule 10b-5 thereunder; FINRA Rules 2010 and 2020. In accordance with the terms of the AWC, FINRA imposed upon Schulman a Bar from association with any FINRA member in any capacity.