SEC Charges Fixed Income Trader with Entering Fictitious Sales to Avoid Brokerage Firm's Inventory Limits
Litigation Release No. 24229 / August 8, 2018
Securities and Exchange Commission v. Salvadore D. Palermo, No. 18-cv-03747-TCB (N.D.Ga. filed August 6, 2018)
On August 6, 2018, the Securities and Exchange Commission charged Salvadore D. Palermo, a trader formerly employed by J.P. Turner & Company, L.L.C., with entering fictitious sales of market-linked certificates of deposit (MLCDs) in order to avoid J.P. Turner's inventory limitations for the fixed income products.
According to the complaint, Palermo paid above-market prices to acquire MLCDs from J.P. Turner brokerage customers, and then held the MLCDs in J.P. Turner's inventory. To avoid J.P. Turner's inventory limitations, Palermo entered dozens of fictitious trades over a seven-month period, beginning in August 2014. Palermo entered the sham sales in order to give the impression that the MLCDs had been sold from J.P. Turner's inventory , knowing the named counterparty never agreed to buy the MLCDs and that each trade would ultimately be cancelled. As a result of these sham transactions, J.P. Turner kept inaccurate trade blotters, showed incorrect asset and revenue account balances, and filed inaccurate Financial and Operational Combined Uniform Single Reports for each month between August 2014 and February 2015.
The SEC's complaint, filed in the U.S. District Court for the Northern District of Georgia, alleges that Palermo aided and abetted violations of Section 17(a) of the Securities Exchange Act of 1934 and Rules 17a-3 and 17a-5 thereunder. The SEC's complaint seeks a permanent injunction, civil penalties and other relief.
The SEC's investigation was conducted by Mark Troszak, under the supervision of Peter Diskin in the Atlanta Regional Office. The litigation will be conducted by Paul Kim and supervised by Graham Loomis.