Martin was supervisor of his member firm’s sales and trading operations and direct supervisor of a registered representative who effected pre-arranged and fictitious trades in collateralized mortgage obligations through the firm’s proprietary trading account.
The transactions appeared to terminate the firm’s ownership of the securities and to generate profits for the firm and the trader, but they were sham transactions because the firm remained the beneficial owner of the securities and the purported transaction profits concealed actual and substantial losses.
The registered representative was able to accomplish and maintain his scheme because Martin reviewed his activity on a daily basis rather than in a manner that would evidence trading patterns over time and expose the firm’s losses and risk. Martin was responsible for the firm’s overall compliance with applicable laws, rules and regulations and for implementing the firm’s supervisory policies, practices and procedures, and Martin failed to supervise the registered representative in a manner reasonably designed to achieve compliance with applicable laws, rules and regulations.
Martin failed to cause the firm to preserve electronic communications.