SEC Charges Brokerage Firm and CEO with Committing Fraud Related to CDO Liquidation Auctions

The SEC charged the brokerage firm VCAP Securities ("VCAP") and its CEO with defrauding and deceiving other market participants while conducting auctions to liquidate collateralized debt obligations ("CDOs").

An SEC investigation found that VCAP and its CEO improperly arranged for a third-party broker-dealer to bid secretly at these same auctions on behalf of their affiliated investment adviser, which VCAP did in order to acquire certain bonds to benefit the funds that it managed and served as a liquidation agent. According to the SEC, VCAP had access to all of the confidential bidding information as the liquidation agent, and the CEO exploited it to ensure that their third-party bidder won the coveted bonds at prices that were only slightly higher than those of other bids.

See: SEC Order.