RBS Securities Inc. has agreed to pay $35 million in penalties and $9 million in restitution to victim customers as part of a nonprosecution agreement related to RBS’ fraudulent trading, according to the U.S. Attorney’s office.“For years, RBS fostered a culture of securities fraud,” said U.S. Attorney Deirdre M. Daly. “Those in a position of authority taught and encouraged fraudulent trading practices. Worse, those supervisors and compliance personnel then took steps to prevent victims and honest RBS employees from discovering and exposing the scheme.”
The government’s investigation revealed that RBS – principally from its trading floor in Stamford – perpetrated a scheme from 2008 to 2013 to defraud its customers in trades of residential mortgage-backed securities and collateralized loan obligations.
The purpose and effect of RBS’ fraud was to increase its profits on residential mortgage-backed securities (RMBS) and collateralized loan obligation (CLO) trades at the expense of victim customers. RBS conducted this scheme by, through and with its employees, who acted with the knowledge, encouragement and participation of RBS supervisors or its compliance-related personnel, according to Daly’s office.
Under the terms of the nonprosecution agreement, RBS agreed to pay a penalty of $35 million and make restitution to victims of at least $9,091,317.14. The resolution takes into account RBS’ voluntary self-reporting, extensive and continuing commitment to cooperate, acceptance of responsibility for its and its employees’ conduct, and remediation efforts.
The U.S. Attorney’s Office did not require RBS to retain an independent consultant to assess and improve RBS’ compliance and ethics program because RBS’ U.S. Asset-Backed Securities, Mortgage-Backed Securities and Commercial Mortgage-Backed Securities Trading group substantially ceased operations in March 2015 and RBS has already taken steps to reasonably prevent and detect further fraud, according to the U.S. Attorney’s office.
Daly’s office cautioned that the agreement addresses only the corporate criminal liability of RBS Securities Inc., not potential criminal charges for any individual. The criminal investigation of individuals associated with RBS’s trading activities remains open.
On Mar. 11, 2015, Matthew Katke, a registered broker-dealer and managing director at RBS, pleaded guilty to conspiracy to commit securities fraud and began cooperating with the government. On Dec. 21, 2015, Adam Siegel, the co-head of U.S. Asset-Backed Securities, Mortgage-Backed Securities and Commercial Mortgage-Backed Securities Trading at RBS, pleaded guilty to the same charge and also began cooperating.