The US Department of Justice and the FBI have announced that Matthew Katke, a senior RBS trader, pleaded guilty in an American federal court to participating in a multimillion securities fraud scheme. Katke also entered into an agreement to cooperate in the government’s ongoing investigation into the bank’s business practices.
According to court documents, between April 2008 and August 2013, Katke was a registered broker-dealer and managing director at RBS Securities Inc. RBS has a trading floor in Stamford, Connecticut where Katke and other members of RBS’s Asset Backed Products division traded fixed income investment securities such as collateralized loan obligations (CLOs). An investigation revealed numerous fraudulent transactions by Katke that victimized at least twenty customers, including firms affiliated with recipients of bailout funds (TARP).
In pleading guilty, Katke admitted that he and others conspired to increase RBS’s profits on CLO bond trades at the expense of customers. The conspiracy was perpetrated in two ways. In certain transactions, Katke misrepresented the CLO seller’s asking price to the buyer (or vice versa), keeping the difference between the price paid by the buyer and the price paid to the seller for RBS. In other transactions, Katke misrepresented to the CLO buyer that bonds held in RBS’s inventory were being offered for sale by a fictitious third-party seller invented by Katke, which allowed Katke to charge the buyer an extra commission that RBS was not entitled to.
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“Fraud in the fixed income markets is a secret and unfair tax on investors everywhere,” said US Attorney Daly. “Broker-dealers, and the people who work for them, need to understand that a market practice that is at odds with the securities law is a crime that carries serious repercussions. We urge others to follow Mr. Katke’s example and cooperate with investigators.”
“As a result of an ongoing criminal investigation by SIGTARP, this afternoon, Katke, a former senior securities trader at investment bank RBS, pleaded guilty to conspiring to defraud bank customers—customers that included TARP banks—out of millions of dollars,” said Special Inspector General Romero. “Katke lied to customers about the status of and the true prices paid and offered for securities as a way to boost profits for himself, others and RBS. Defrauding a TARP recipient bank is the same as defrauding the American taxpayers who funded the TARP bailout.”
Katke pleaded guilty to one count of conspiracy to commit securities fraud, which carries a maximum term of imprisonment of five years. He was released on a $250,000 bond and is scheduled to be sentenced by US District Judge Robert N. Chatigny of the District of Connecticut on June 3, 2015.