Ex-Morgan Stanley Trader Settles SEC Claims Over Hiding Risk
A former Morgan Stanley (MS) trader agreed to pay $25,000 to settle U.S. Securities and Exchange Commission claims that she concealed proprietary trades that exceeded the firm’s risk limits.
Jennifer Kim and her supervisor, Larry Feinblum, used “fake” swap orders at least 32 times from October to December 2009 to hide their risk of losses, the SEC said in an order today. New York-based Morgan Stanley ultimately lost about $24.5 million from the unauthorized trades, according to the agency.
Feinblum, who is no longer employed by Morgan Stanley, agreed to pay $150,000 to settle related claims May 31, according to a separate order. In resolving the matters, Kim and Feinblum didn’t admit or deny wrongdoing.
Kim and Feinblum entered into swap orders that they intended to cancel almost immediately, which had the effect of “tricking” the firms’ monitoring systems into recording reduced net risk positions, the SEC said. After being told by his supervisor not to increase his exposure to India-based Wipro Limited, Feinblum instead distorted his position with the fake swaps and continued to accumulate more risk, the SEC said.
The misconduct came to light in December 2009 after Feinblum told his supervisor he had lost $7 million in one day and that he and Kim had repeatedly exceeded risk limits and hidden the positions, according to the order.
SEC Commissioner Luis Aguilar said the terms of Kim’s settlement were “inadequate,” according to a written dissent posted on the agency’s website. The settlement “fails to address what is in my view the intentional nature of her conduct,” Aguilar said.
Phone calls to Daniel Chaudoin, Feinblum’s attorney at Wilmer Cutler Pickering Hale and Dorr LLP, and Christopher Caparelli, Kim’s lawyer at Torys LLP, weren’t immediately returned. Mary Claire Delaney, a spokeswoman for Morgan Stanley, declined to comment.
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