Former RBS trader pleads guilty in U.S. to cheating customers

By Jonathan Stempel

(Reuters) – A bond trader pleaded guilty on Wednesday to conspiring to defraud Royal Bank of Scotland Group Plc (RBS.L) customers by lying about the prices of bond transactions he handled for them in an effort to boost the bank’s profit.

Matthew Katke, 34, of New York, pleaded guilty to one count of conspiracy to commit securities fraud and will cooperate with prosecutors, U.S. Attorney Deirdre Daly in Connecticut said.

The plea came one year after a federal jury in New Haven, Connecticut in a similar case convicted former Jefferies Group Inc managing director Jesse Litvak for cheating his customers on prices of mortgage-backed securities.

Daly is trying to salvage that conviction and Litvak’s two-year prison term after a federal appeals court in New York said Litvak’s appeal raised an issue likely to result in a reversal.

Prosecutors said Katke conspired with colleagues at RBS, where he worked from 2008 to 2013, to cheat customers out of millions of dollars on collateralised loan obligations, causing buyers to pay too much and sellers to accept deflated prices.

Katke would typically lie about sellers’ asking prices and keep the differences or charge extra commissions by inventing third-party sellers, prosecutors said.

The scheme defrauded at least 20 customers, including recipients of money under the $700 billion federal bailout known as the Troubled Asset Relief Program, prosecutors said. CLOs are securities typically backed by low-rated corporate debt.

“Fraud in the fixed income markets is a secret and unfair tax on investors everywhere,” Daly said in a statement.

Katke most recently worked at Nomura Holdings Inc , which he joined in August 2013. Nomura terminated Katke’s employment this month, a person familiar with the matter said.

Richard Albert, a lawyer for Katke, declined to comment.

“RBS has been cooperating and intends to continue to cooperate with the government with respect to this investigation,” spokeswoman Sarah Lukashok said.

The bank was not charged. Jefferies, a unit of Leucadia National Corp (LUK.N), last year agreed to pay $25 million to end U.S. criminal and civil probes into how it supervised Litvak and other traders.

Katke faces up to five years in prison at his June 3 sentencing. He was freed on bond, and his plea agreement says he may be able to withdraw his guilty plea if Litvak’s conviction is overturned.

The case is U.S. v. Katke, U.S. District Court, District of Connecticut.

(Reporting by Jonathan Stempel in New York; Editing by Diane Craft and Cynthia Osterman)

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