RIA Compliance Blog
A federal court in the Southern District of New York is currently considering a motion filed last month that would overturn a jury verdict convicting a former Forex Trader at JP Morgan, Akshay Aiyer, of conspiring to rig bids in Forex transactions. The motion argues that the testimony of alleged co-conspirators Christopher Cummins of Citigroup and Jason Katz of Barclays was unreliable and false, and should not serve as a valid basis for the conviction.
Another aspect of the case that should be of interest to compliance officers of financial services firms was the role that text messages and group chats played in the trial of Mr. Aiver. During the trial in November 2019, Mr. Cummins testified that he and defendant Aiyer communicated via text message and private chat rooms in order to avoid being caught by the banks’ compliance personnel. Cummins pled guilty in 2017 but testified as a cooperating witness for the U.S. Justice Department in the case against Aiyer.
The cases against the US traders are only a part of a larger scheme involving other banks as well. In May 2017, the European Union levied fines totaling €1.7 Billion on Barclays, Citigroup, JPMorgan, Royal Bank of Scotland and Mitsubishi UFJ. The only firm not fined by the EU was UBS, who first detected and reported the fraudulent scheme. The importance of being able to monitor and detect these types of communications cannot be ignored.
FINRA Rules 3110 and 3120 requires broker-dealers to establish and maintain systems that are reasonably designed to achieve compliance with the securities laws and FINRA rules. Similarly, Advisers Act Rule 206(4)-7 requires that investment advisors adopt and implement written policies and procedures that are reasonably designed to prevent and detect violations of the Investment Advisers Act. In 2018 the SEC’s Office of Compliance Inspections and Examinations issued a Risk Alert that discussed investment advisers’ obligations to both archive and monitor text messages used by supervised persons in conducting the adviser’s business.
The prosecutors allege that Aiyer, Cummins, and a third person conspired to fix prices in bank-to-bank trades and customer currency trades from 2010 to 2013. Prosecutors also allege that the group engaged in “spoofing,” a practice of placing fake bids in order to move currency prices.
The group perpetrated the scheme, according to prosecutors, through chat rooms and text messaging. The government witnesses testified that engaging in emails and Bloomberg messages would have disclosed their scheme because they were subject to being searched by both compliance personnel and potentially regulators. They also used Bloomberg messages when necessary, but employed tricks that were designed to hide the messages from supervisors. One example was a Bloomberg text message relating to a Chinese currency purchase in 2011, in which the word “China” was spelled out one letter at a time on separate lines. Cummins testified that by putting one letter on each line, the search function within Bloomberg is defeated.
In another interesting exchange via text message, Katz told Aiyer in 2011that “conspiracies are nice.” Aiyer responded by warning Katz that he shouldn’t be creating a written record by sending messages like that. In response to a chat suggesting that the traders “co-ordinate,” a JP Morgan trader responded, “prolly shudnt put this on perma chat.” Prosecutors argued that these exchanges are clear evidence that the defendant was engaged in a criminal conspiracy.
Parker MacIntyre provides legal and compliance services to investment advisers, broker-dealers, registered representatives, hedge funds, and issuers of securities, among others. Our Investment Adviser Group assists financial service providers with complex issues that arise in the course of their business, including complying with federal and state laws and rules. Please visit our Investment Adviser Practice Group page for more information.