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Matthew Katke, 34, admitted that he and others conspired to increase RBS’s profits on collateralized loan obligations (CLO) at the expense of customers. As part of the scheme, Katke and his co-conspirators made misrepresentations to induce buying customers to pay inflated prices and selling customers to accept deflated prices for CLO bonds, all to benefit RBS, the U.S. attorney said.
The conspiracy was perpetrated in two ways.
In certain transactions, Katke misrepresented the CLO seller’s asking price to the buyer (or vice versa), keeping the difference between the price paid by the buyer and the price paid to the seller for RBS.
In other transactions, Katke misrepresented to the CLO buyer that bonds held in RBS’s inventory were being offered for sale by a fictitious third-party seller, which was invented by Katke. This allowed Katke to charge the buyer an extra commission that RBS was not entitled to, the U.S attorney said.
Katke cost at least 20 customers, including firms affiliated with recipients of federal bailout funds through the federal Troubled Asset Relief Program (TARP), millions of dollars.
“Fraud in the fixed income markets is a secret and unfair tax on investors everywhere,” Daly said in a statement. “Broker-dealers, and the people who work for them, need to understand that a market practice that is at odds with the securities law is a crime that carries serious repercussions. We urge others to follow Mr. Katke’s example and cooperate with investigators. We want to thank SIGTARP and the FBI for their efforts to date in this continuing investigation.
Katke faces up to five years in prison. He will be sentenced on June 3.
The case was investigated by the FBI and the Special Inspector General for TARP, and is being prosecuted by Assistant United States Attorneys Jonathan Francis and Heather Cherry.
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