August 25, 2016
On August 16, 2016, The Securities and Exchange Commission (SEC) released a Cease-and-Desist Order (Order) against Edwin K. Chin, formerly a registered representative at Goldman, Sachs & Co. (Goldman) in New York, New York. According to Edwin’s FINRA BrokerCheck report, Edwin worked for Goldman from September 2003 until January 2013 when the firm discharged him after allegations arose that he sold debt securities and repurchased some of those securities through a third party without advising a Goldman manager.
Chin’s job as a senior trader and managing director at Goldman involved arranging residential mortgage-backed securities (RMBS) trades between buyers and sellers and purchasing and selling RMBS for and out of Goldman’s inventory. Between 2010 and 2012, Chin allegedly misled customers about how much Goldman paid for the RMBS and the amount of Goldman’s compensation for arranging the trades. According to the Order, Chin also misrepresented that he was arranging a RMBS trade between customers, when Chin really was selling the RMBS out of Goldman’s own inventory. Many of Chin’s customers in these RMBS trades were investment advisors seeking investments for their own clients.
RMBS trades are described as illiquid, meaning they are not easily sold or exchanged for cash. Thus, it can be difficult to know their market price unless learning it from the dealer. According to the Order, Chin’s customers would have made an effort to pay a lower purchase price for the RMBS had they been aware of Chin’s misrepresentations and given accurate facts. Since investors of RMBS receive payment from the interest and principal payments on the underlying mortgages, the SEC claims that through these misrepresentations, Chin generated more revenue for Goldman and, indirectly, produced greater compensation for himself.
In anticipation of this Order, Chin submitted an Offer of Settlement (Settlement) to resolve these allegations the SEC made against him regarding a violation of Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5. By signing the Settlement, Chin consented, without admitting or denying the findings, to a bar from serving or associating with any broker, dealer, investment advisor, municipal securities dealer, municipal advisor, transfer agency, or nationally recognized statistical rating organization. Chin has the option to apply for reentry after two years of disbarment. Additionally, the SEC ordered Chin to pay a $150,000 civil money penalty, disgorgement of $200,000, and prejudgment interest of $50,000.