A former registered rep and trader at Morgan Stanley & Co. Inc. agreed to be barred from the securities business for two years and to pay a hefty fine for fraudulent trading, the Securities and Exchange Commission said.
Larry Feinblum, 35, worked at Morgan Stanley's dually-registered broker-dealer and investment advisory unit for more than 10 years and ultimately became an executive director and a supervisor of the firm's equity financing products swaps desk, where he headed the desk's principal financing strategy and executed an arbitrage trading strategy. He was responsible for trading in more than 600 accounts.
According to the SEC, Feinblum executed numerous proprietary trades during the latter months of 2009 that exceeded the company's risk limits. Specifically, he sought to profit from the price difference between U.S. and foreign markets through arbitrage positions involving Wipro Limited, an India-based provider of internet technology services, and United Microelectronics Corp., a Chinese semiconductor maker.
Feinblum increasingly upped his short positions in the ADRs of these companies without sufficiently offsetting that risk with accompanying long positions in the related common stocks. To cover his tracks from management, he placed swap orders to temporarily and artificially reduce the net risk of his positions, and then quickly cancelled those orders shortly after they were placed.
Ultimately, those trades went south as the price of the ADRs rose at a faster rate than the common stocks, and the dollar sank against the local currencies. Ultimately, Feinblum's failed trading strategy cost Morgan Stanley more than $24 million in losses. Feinblum was fired in early 2010.
As part of charges brought by the SEC against Feinblum for fraudulent securities trading, the ex-Morgan Stanley trader agreed to be barred from the securities business for at least two years and to pay a $150,000 civil penalty.