South Florida Arbitration & Litigation Lawyer Blog
FINRA 2011 Account Executive Enforcement Action:
Thomas Anthony Chrestman (CRD #1135841, Registered Representative, Cordova, Tennessee, currently licensed with Saxony Securities, Inc.) submitted a Letter of Acceptance, Waiver and Consent in which he was fined $20,000 and suspended from association with any FINRA member in any capacity for three months. Without admitting or denying the findings, Chrestman consented to the described sanctions and to the entry of findings that he engaged in pre-arranged trading of collateralized mortgage obligation (CMO) bonds in a trading account of his member firm. The findings stated that Chrestman effected CMO bond transactions in the firm’s trading account for which a registered principal/trader or another trader, whose transactions the principal also coordinated, was the contra-party. The findings also stated that the transactions were pre-arranged and directed by the registered principal, who set the price of the bonds and, simultaneously, agreed to repurchase them from Chrestman at a specified time, at an agreed-upon price that provided Chrestman with a profit. The findings also included that Chrestman participated in the pre-arranged trading with the registered principal because the principal asked that he do so; Chrestman was not familiar with all of the risks and attributes of the “inverse floater” CMOs that he was trading with the principal, and did not ascertain whether the transaction prices were at or away from the current market. FINRA found that the registered principal consistently repurchased, or caused the repurchase of, the bonds within a short time after Chrestman acquired them, the transactions were not without risk and an increasing number of the transactions occurred at prices away from the current independent market. FINRA also found that had the principal failed to repurchase those CMO bonds, the firm’s trading account would have owned them at a price exceeding the price the firm was likely to obtain in an open-market sell transaction. The suspension is in effect from March 21, 2011, through June 20, 2011. (FINRA Case #2008012444204)
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