The head trader on the Small Business Administration desk of Morgan Keegan settled FINRA charges that he effected fictitious trades in securitized SBA loans in order to reduce his desk’s inventory levels.  Here's the story of Francis Paul Anton II, of Memphis, TN.

From February 2008 through April 2009 (the "Relevant Period"), Anton was able to sell the "interest only strips" ("IO Strips") relating to securitized SBA loans, but he couldn't sell the SBA Securities.  To do so would have caused the Firm to incur a significant loss due to a lack of buy-side interest.

Anton decided to place fictitious trades in the Firm's trading system via Bloomberg to create the impression that the SBA Desk's inventory levels were lower than they actually were. He fictitiously sold off $75 million worth of SBA Securities from inv entory in 4 false trades with certain of the firm's institutional customers.  He reported the sales at prices that were above the mark-to-market price, thus fictitiously taking in $82,652,497 and creating the false impression he had avoided selling those securities at a loss.

In addition  to his effecting  the 4 false trades, Anton, over a period of 4 to 5 months, also manipulated forward the settlement dates for the trades - which were 30 days post execution.  As the settlement date for each order approached, Anton manipulated them forward to afford him additional time to try to sell the SBA Securities.  In 30-day forward  settlement  intervals, Anton cancelled and corrected trades in the same pool of SBA Securities at the same transaction quantity, which triggered the creation of a "cancel & correct" ticket.  During that same period, Anton also maintained an improper inventory level of IO strips.  

On or about 4/20/09, a firm employee discovered a discrepancy in the SBA securities’ reporting position and reported the observation to the firm’s management.  An investigation picked up the repeated pattern of cancellation and corrections relating to the SBA security trades in 30-day intervals.  And, as FINRA learned, although Anton neither colluded with any other firm employees to enter the fictitious trades nor personally benefited from the fictitious trading, he misrepresented to certain non-supervisory firm staff that he had mistakenly effected the trades and that he would correct the errors. 

When Anton was confronted by his managers, he admitted to effecting false trades and manipulating the
corresponding settlement dates.

Anton was fined $10,000 and suspended 6 months.  This is FINRA Case #2009018062601.   [Disciplinary Action for June 2011]  

For further details, go to:   [Anton's AWC, 4/25/11]