Case Study

Members of our team at Compliance Mitigation served time alongside thousands of other people who were convicted of white-collar crimes. We knew one person who owned a brokerage firm that specialized in trading bonds. As the company grew, the owner began to delegate responsibilities for day-to-day trading activities. Instead of overseeing trades, the owner focused on bringing in more capital. That strategy would have been fine, provided that the owner created well-documented and vetted compliance systems. Sadly, the owner did not.

Changing market conditions resulted in one of the lead traders making a series of unprofitable transactions. The trader then launched a series of events to cover up his decisions. When markets went against him, he lost more money than authorized, resulting in a margin call. The owner said that he was not aware of the losses, and he lacked the capital to meet the margin call. Chaos ensued, leading to a flash crash and obliterating the company’s entire portfolio.

The owner of the bond trading firm lost everything. A government investigation followed. Prosecutors brought charges against many people, including the owner for his criminal negligence in failing to supervise employees. After a guilty verdict, a judge sentenced the owner to serve a prison term of longer than 10 years and saddled him with a restitution order measured in the hundreds of millions of dollars.

Our team at Compliance Mitigation cannot vouch for the validity of what the owner told us—after all, we met him inside of a federal prison. On the other hand, we can say that if he had devised a better compliance system, he would have had a stronger defense against the charges that the government brought against him.