FINRA has barred a former advisor from Deutsche Bank from the securities industry for manipulating the stock price of Monogram Biosciences (MGRM). The purpose of the scam was to enrich himself and a hedge fund client.
Edward S. Brokaw engaged in trading designed to decrease the price of MGRM stock and increase the value of contingent value rights (CVRs) on that stock.
The MGRM CVRs were created and issued in December 2004, in connection with the merger of two firms to form MGRM. The CVRs were to be valued during a 15-day pricing period scheduled for 18 months after the merger.
Brokaw’s hedge fund client held approximately 18.5 million CVRs – nearly 30 percent of the 64.8 million MGRM CVRs outstanding.
The FINRA hearing panel decision notes that the hedge fund owned 3 million shares of MGRM and told Brokaw that it wanted to sell those shares during the pricing period. Deutsche Bank’s compliance group reviewed the orders and decided it would no longer execute MGRM sales for the hedge fund’s account. Deutsche Bank first suspended, then terminated Brokaw based on his MGRM sales orders for the hedge fund.
The FINRA panel found that Brokaw violated Deutsche Bank’s policy requiring the individual accepting a client order to create an order ticket “immediately upon receipt of an order.” Instead, Brokaw’s sales assistant completed one “booking ticket” each day, each showing a single 100,000-share order to sell, each with a false notation that the order was given by the client directly to the trading desk rather than to Brokaw – bypassing branch office compliance review of the orders.