FINRA Fines Phoenix Derivatives Group, Eight Brokers at Five Firms A Total of $4.3 Million for Improper Communications About Customers' Interdealer Brokerage Rate Negotiations
FINRA's Investigation Is Continuing
WASHINGTON — The Financial Industry Regulatory Authority (FINRA) announced today that it has imposed fines totaling $4.3 million against Phoenix Derivatives Group, LLC of New York and eight brokers – three employed at Phoenix and five at four other interdealer brokerage firms – for improper communications about customers' proposed brokerage rate reductions in the wholesale credit default swap (CDS) market.
"These settlements reflect our continued pursuit of conduct that undermines fundamental principles and rules upon which customers and free markets rely for efficient price discovery," said Tom Gira, Executive Vice President of FINRA's Department of Market Regulation. "FINRA's requirements to observe high standards of commercial honor and just and equitable principles of trade are designed to prevent the types of inter-firm communications that occurred in this case, which threaten the proper function of market forces."
Phoenix and its three CDS desk co-heads were sanctioned for attempting to improperly influence other interdealer brokerage firms and their employees regarding brokerage fees and rate reductions. In addition, the firm was sanctioned for failures with related supervision, document production and record retention violations.
Phoenix was fined $3 million, of which $900,000 is a joint and several fine apportioned among the three CDS desk co-heads – former Managing Partner Jon Lines and Managing Partners Wesley Wang and Marcos Brodsky. FINRA suspended all three from working in the securities industry – Lines for three months, Wang for two months and Brodsky for one month.
In addition to Phoenix and its desk co-heads, five brokers at other interdealer firms in the CDS market were fined a total of $1.3 million and issued suspensions as part of FINRA's ongoing review:
- Thomas J. Lewis and Matthew A. Somers, former brokers and co-managers for the CDS desk at Chapdelaine Corporate Securities & Co., of New York, were each fined $350,000 and suspended from working in the securities industry in all capacities for six months and three months, respectively.
- John P. Tompkins, a former broker and manager of the CDS desk at CreditTrade (US) Corp., of New York, was fined $100,000 and suspended in all capacities for four months.
- Michael B. Jessop, a former broker and co-manager of the CDS desk at Tullett Liberty Inc., of New York, was fined $250,000 and suspended in all capacities for two months.
- Eric Ridder, a former broker for Creditex Group, Inc., of New York, was fined $250,000 and suspended in all capacities for two months.
In June 2009, FINRA fined ICAP Corporates LLC, of Jersey City, $2.8 million and fined and suspended a former broker for related misconduct. FINRA's investigation is continuing.
FINRA found that the eight brokers engaged in communications with personnel at other interdealer brokerage firms that improperly attempted to influence those firms and individuals. These communications generally occurred after individual customer firms sought to renegotiate their CDS brokerage fees, sending schedules of proposed rate reductions separately to a number of individual interdealer brokers. The communications that the eight brokers engaged in with personnel at other interdealer brokers included reactions to customers' proposed rate reductions and statements concerning actual or contemplated interdealer broker responses or counter-positions to the customers' proposed rate reductions. Certain brokers' communications with other interdealer brokers also included discussions about creating identical, or similar, individual counter-proposals to rate reduction requests.
FINRA also found that while many of the brokers' communications typically involved one-to-one discussions with personnel from other CDS interdealer brokerage firms, certain of those discussions also referred to similar communications about the proposed fee-reduction schedules with additional interdealer brokerage firms.
Phoenix and the eight individuals settled these matters without admitting or denying the allegations, but consented to the entry of FINRA's findings.
Investors can obtain more information about, and the disciplinary record of, any FINRA-registered broker or brokerage firm by using FINRA's BrokerCheck. FINRA makes BrokerCheck available at no charge. In 2009, members of the public used this service to conduct 18.5 million reviews of broker or firm records. Investors can access BrokerCheck at www.finra.org/brokercheck or by calling (800) 289-9999.
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