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David Demos, 35, was charged with securities fraud in an
indictment filed in federal court in New Haven, Connecticut,
becoming the latest trader to face charges for cheating
customers on prices of mortgage-backed securities.
Demos, of Westport, Connecticut, appeared in court on Friday for
an arraignment. In a joint statement afterwards, his legal team,
which includes lawyers Peter Chavkin and Stanley Twardy, said
Demos would fight the charges.
"Mr. Demos denies the charges made against him, including the
allegations that his communications and negotiations with
counterparties were 'material,'" his lawyers said in the
statement. "He intends to vigorously defend himself."
Prosecutors said Demos, a trader and managing director at Cantor
Fitzgerald from November 2011 to February 2013, defrauded
customers by fraudulently inflating the price at which the
company could buy residential mortgage-backed securities.
The goal, prosecutors said, was to induce customers to pay a
higher price for mortgage bonds and to decrease the price at
which Cantor could sell them in order to get investors to sell
bonds at cheaper prices.
The scheme allowed Cantor Fitzgerald and Demos to reap illegal
profits, prosecutors said, while causing their customers to
sustain millions of dollars of losses.
The victims included asset managers and firms affiliated with or
subsidiaries of recipients of funds from the U.S. government's
financial crisis-era bailout program, the Troubled Asset Relief
Program, prosecutors said.
The case marked the latest action by federal prosecutors in
Connecticut against traders accused of cheating customers on
prices of mortgage-backed securities.
In December 2015, a federal appeals court reversed a first
conviction in the probe against Jesse Litvak, a former Jefferies
managing director who was found guilty in 2014 and sentenced to
two years in prison.
Litvak, who denies wrongdoing, is scheduled to face re-trial on
Jan. 4. Jefferies, a unit of Leucadia National Corp <LUK.N>, in
2014 agreed to pay $25 million to end U.S. criminal and civil
probes into how it supervised Litvak and other traders.
Others charged to date include two former Royal Bank of Scotland
Group Plc <RBS.L> traders, who have pleaded guilty, and three
former traders at Nomura Holdings Inc <8604.T>, who are
scheduled to face trial on Feb. 27.
The case is U.S. v. Demos, U.S. District Court, District of
Connecticut, No. 16-cr-00220.
(Reporting by Nate Raymond in New York; Editing by Phil
Berlowitz and Leslie Adler)
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