Edwin Chin, an ex-Goldman Sachs Group Inc. (GS) senior trader, will pay $400K to resolve U.S. Securities and Exchange Commission charges accusing him of misleading the bank’s customers when he sold them residential mortgage-backed securities at prices that were higher than they should have been. Even though he is settling, Chin is not denying or admitting to the regulator’s findings. He has, however, agreed to the entry of the order stating that he violated the Securities and Exchange Act of 1934 and Rule 10b-5.
According to the Commission’s order, from 2010 until 2012, which is when Chin left the bank, the former Goldman trader made extra money for the firm by concealing the prices that it had paid for different RMBSs and reselling the securities at higher prices to customers. The difference in cost would go to Goldman.
The SEC said Chin made over $1.5M in additional trading profits. Because Goldman made more money, Chin did as well.
The regulator accused Chin of sometimes misleading buyers by suggesting that he was in the process of negotiating a transaction between customers when he was merely selling residential mortgage-backed securities from Goldman’s inventory. In one alleged incident, Chin earned an additional $200K by telling a hedge fund client that he would sell a bond at cost price and without compensation. Unfortunately, he purportedly neglected to tell the hedge fund that he had already bought the security, had it in inventory, and was charging the fund a worse price than what Goldman paid earlier that day. The SEC said that Chin misled the same client about the price of a different security the following day, resulting in an additional $100K in profit.
The bank fired Chin in 2012. At that point he was the RMBS trading desk’s head trader. Chin was reportedly let go from Goldman after he bought back certain securities without notifying his manager.
As part of the settlement, Chin will pay $200K in disgorgement, a $150K penalty and $50K in prejudgment interest. He is barred from the securities industry. He can, however, two years from now ask the SEC for permission to go back to working for a Wall Street financial firm.
If you suspect that your losses are due to fraud, contact our mortgage-backed securities fraud law firm today.