Risk & Compliance

Ex-Goldman Trader Fined $400K in Fraud Case

Edwin Chin allegedly misrepresented the terms of RMBS trades to increase Goldman's profits and his own compensation.
Matthew HellerAugust 17, 2016

A former top mortgage trader at Goldman Sachs has been charged with misrepresenting the terms of trades to customers, causing them to pay higher prices and increasing the firm’s profits.

The U.S. Securities and Exchange Commission said Edwin Chin, 35, concealed the actual price Goldman paid for residential mortgage-backed securities and then sold them at higher prices to the buying customer, with the firm keeping the difference.

On other occasions, he allegedly misled purchasers by suggesting he was actively negotiating a transaction between customers when he was merely selling RMBS out of Goldman’s inventory.

In an administrative order, the SEC detailed five specific transactions in which Chin obtained a total of more than $1.5 million in extra profits for the firm. His alleged misconduct occurred between 2010 and 2012, when he was fired by Goldman.

To settle the charges, Chin agreed to pay $400,000, including $200,000 in disgorgement, $50,000 in prejudgment interest, and a $150,000 penalty. He was also suspended from the securities industry for two years.

“Chin repeatedly abused his fundamental duty to serve as an honest transmitter of market information so he could increase Goldman’s trading profits and, indirectly, his own compensation,” Michael J. Osnato, chief of the SEC Enforcement Division’s Complex Financial Instruments Unit, said in a news release.

Chin joined Goldman in 2003 and, by 2011, was its most active RMBS trader. According to Dealbreaker, the role of trader is especially important for RMBS because the “securities trade over-the-counter, meaning there’s no public ledger of bids and offers.”

In one of the trades detailed by the SEC, Chin bought $11 million of securities at 35% of the face value of the bond but told a customer he had received a counter-offer to pay 36.5% for it. The buyer didn’t exist and the customer eventually bought the bond for 36.125%.

Goldman made an extra profit of $100,000 on the deal. The customer “would have attempted to obtain a lower price on the trade had he known the truth,” the SEC said.

Chin allegedly obtained $825,000 in extra profits on another deal by inventing an active negotiation and misrepresenting the terms.