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You may have lost money in your investment portfolio,
due to mismanagement and not even know it.

Fraud case focus: trading in world of mortgage-backed securities

One commentator who supported the verdict announced in a recently concluded criminal case spotlighting trader tactics in the buying and selling of mortgage-backed bonds called a convicted participant's actions "not merely distasteful negotiating practices but a crime."

His view was not unanimously endorsed following the conclusion of a federal trial last week convicting the trader on a single count of securities fraud. One expert witness for the defense countered that bond traders are part of a sophisticated club who would not be easily fooled by any pricing-related assertions in buy-sale negotiations.

That individual downplayed the importance of misrepresentations made by the convicted trader in transactions with others, stating that quoting false bid prices is simply "a bit like playing poker and bluffing" in the trading world and, by itself, not overly concerning.

Federal regulators could have scarcely disagreed more with that assertion. They flatly viewed the trader's act of altering an electronic communication with a seller to falsely indicate an inflated buying price, and then passing along that false information to another trader negotiating a purchase, as securities fraud and a criminal act warranting a lengthy prison term.

The trial could have ended with a far more stringent result for the trader, who was acquitted on nine other fraud-related criminal counts. He is scheduled for sentencing in April, with the potential for a 20-year lock up looming (although a Bloomberg report on the trial assumes he will likely "get a much less severe sentence").

The trial was the second for the trader. Although he was convicted last December in a case in which he was found guilty on all 15 counts he faced, that matter was reversed on appeal for the court's failure to allow expert witnesses to testify for the defense.

This time they did. Notwithstanding their testimony, an upcoming prison sentence now awaits the trader.

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