FINRA charged an interdealer broker and 5 individuals with engaging in anti-competitive conduct and collusion while brokering interdealer credit default swaps (CDS) transactions. 

GFI Securities LLC (New York, NY) is alleged to have brokered interdealer credit default swaps (CDS) transactions and, in response to certain commission reduction proposals, and unknown to customers, the firm colluded with competing firms in order to keep customers from obtaining CDS brokerage services at more favorable rates.  Such anti-competitive conduct benefitted the firms at the customers’ expense.

    GFI and associated persons - Registered Principals Michael Babcock and Donald Fewer;  RR's Stephen Falletta, Stephen Scotto and Lainee Steinberg - allegedly acted unethically and failed to observe high standards of commercial honor and just and equitable principles of trade - by allegedly:

• engaging in a device, scheme or artifice to defraud;
• making material misstatements or failed to make material disclosures to customers - i.e., that they engaged in collusion with competing firms to to disadvantage customer with regard to bona fide competitive rates;
• making material misstatements suggesting they were not engaging in such interactions.

In connection with the offer or sale of any securities or any security-based swap agreement, they allegedly:

• made untrue statements of material facts or omitted to state material facts to obtain money or property;
• engaged in transactions that operated as a fraud or deceit upon the purchaser.

    The firm Babcock and Fewer, allegedly knew or ignored red flags indicating that RR's under their supervision were engaging in improper communications with competitors re: CDS brokerage rates.   Backcock and Fewer's WSP's apparently were not reasonably designed to ensure compliance with FINRA Rule IM 2110-5 and other rules and regs concerning anti-competitive conduct.  Specifically, the WSP's were not specific about how, how often, or by whom supervisory reviews were to be conducted to ensure that such conduct was not occurring. 

Backcock and Fewer's WSP's also apparently failed to provide for ongoing and systematic review of brokers’ electronic and telephonic communications for that purpose.  The firm failed:  (i) to review employees’ Bloomberg messages;  (ii) to document such reviews until recently;  and, (iii) failed to document that it conducted any supervisory reviews of other IM-communications.  (FINRA Case #2006005158301 - November Disciplinary Actions)