(Bloomberg) -- A former RBS Securities Inc. trader who pleaded guilty in a decade-old crackdown on questionable bond sales was spared further punishment by a federal judge, providing a quiet bookend to a prosecution that shocked Wall Street.
Adam Siegel, the former co-head of mortgage and US corporate trading at RBS Securities, was sentenced to time served on Tuesday by US District Judge Robert Chatigny in Hartford, Connecticut, more than eight years after he agreed to assist a government investigation into shady sales practices in the opaque world of securities backed by assets such as home mortgages.
The effort to clamp down on fraud in the asset-backed securities market came to light with the arrest of former Jefferies Group trader Jesse Litvak in January 2013. The probe triggered alarm bells on Wall Street and forced investment banks to tighten rules about what can be said to clients and boost monitoring of employee communications.
But while more than 20 traders were dismissed or placed on leave during the U.S. investigation, prosecutors had difficulty obtaining any lasting legal punishments. Litvak was found guilty twice and served seven months in prison, but both verdicts were overturned on appeal and the case was eventually dropped. Out of the five people who went before a jury, only one was convicted of a single count and received probation.
The traders were all accused of lying about the selling and asking prices of securities, sometimes telling clients that bonds were being sold by a fake third-party seller. The facts were generally uncontested by the defendants, who argued that they were dealing with sophisticated financiers who took their statements with a grain of salt and that the conduct was pervasive in the industry.
Harry Sandick, a former federal prosecutor, said that the probe has made traders “think twice” about their conduct, even if some of the government’s legal theories “may have been shaky.”
“Everyone became concerned about potential misrepresentations to people in the markets about margin,” said Sandick, who is now a white-collar defense attorney. “The way people think about the issue is lasting.”
Siegel’s lawyer, Michael G. Considine, said the case should never have been brought against his client.
‘Only Fair Result’
“A sentence of time served — with no fine or probationary period — was the only fair result,” Considine said. “Mr. Siegel and his family look forward to moving on with their lives and appreciate the court recognizing that this matter needed to be brought to a close.”
Two other bankers who cooperated in the probe — ex-RBS trader Matthew Katke and former Nomura Holdings Inc. Vice President Frank DiNucci Jr. — were given the same punishment by Chatigny over the last few months.
Prosecutors said Siegel and Katke provided evidence that was used in the Litvak case and also helped to establish criminal liability for RBS, which agreed to pay $44 million in penalties and restitution in October 2017 as part of a deal with the government.
DiNucci served as one of the star witnesses for prosecutors in the 2017 trial of three former Nomura traders, testifying that he was trained to lie to customers about the prices of mortgage-backed securities shortly after he joined the company.
DiNucci’s testimony didn’t help prosecutors much.
At the trial, Ross Shapiro, Nomura’s former head trader for mortgage-backed securities, was cleared of eight counts but jurors deadlocked on a single conspiracy charge. The charge was later dropped after he reached a deal with prosecutors to complete a pretrial diversion program.
Another Nomura trader, Michael Gramins, was convicted of one conspiracy charge during the Hartford trial and later sentenced to probation.
The case is US v. Siegel, 15-cr-231, US District Court, Southern District of New York.
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