A federal judge approved civil sanctions against former IFS Securities Inc. trader Keith A. Wakefield, while a parallel criminal case advances with an arraignment set for Nov. 9.
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The firm fired Wakefield Aug. 8, 2019, and it spent virtually all of its capital, approximately $5.3 million as of July 31, 2019, attempting to cover the trading losses. IFS filed for bankruptcy on April 24, 2020. The firm self-reported the losses to the Securities and Exchange Commission and the Financial Industry Regulatory Authority and also to the Federal Bureau of Investigation at the SEC's request.
Initial regulatory sanctions were levied against Wakefield on Sept. 25, 2019, when FINRA barred him for refusing to appear for on-the-record testimony about his actions.
U.S. Attorney John R. Lausch Jr. for the Northern District of Illinois and the SEC dropped the hammer two years later on Sept. 30 with the parallel filing of criminal and
Wakefield, who was a former managing director and head of fixed income at IFS Securities, agreed to settle the civil charges including violating antifraud provisions of the securities laws and aiding and abetting IFS’s failure to maintain accurate books and records and operate with sufficient net capital. He neither admitted nor denied the allegations.
“Wakefield’s unauthorized trading and receipt of fictitious commission income came to an end in August 2019 when IFS was unable to honor millions of dollars in unauthorized fixed income securities trades executed by Wakefield with more than one dozen counter-parties,” the SEC said. “As a result, IFS was forced to close its business, withdraw its registration as a broker-dealer, and file for bankruptcy.”
The settlement was simultaneously announced with the SEC’s civil enforcement complaint and in the latest developments U.S. District Court Judge John J. Tharp, Jr. entered a judgment against Wakefield Oct. 14 approving the sanctions and the SEC entered an administrative order Monday.
The speculative trading is alleged to have occurred between June and August 2019 and led to $30 million in losses, according to the complaints.
Wakefield also “engaged in a variety of fraudulent practices to create the appearance of fictitious trading profits and to disguise his unauthorized trading losses, including falsifying IFS’s books and records,” the SEC order reads.
The alleged fraud dates back to January 2017 as Wakefield, 47, is alleged to have embezzled $820,000 in commission income from IFS based on fictitious commission payments from customers.
The sanctions Wakefield agreed to permanently enjoin him from future securities violations, bar him from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization and from participating in various public offerings in any capacity.
Disgorgement of the ill-gotten gains and civil penalties are still pending with the amounts to be determined. Once the SEC asks the court to proceed on that front, Wakefield can’t argue that he did not violate the federal securities laws as alleged in the complaint and agrees not to challenge the validity of the consent or judgement. No timeline on when the commission will return to the court to pursue the fines was provided.
Wakefield will appear before U.S. District Court Judge Jeffrey T. Gilbert for an initial hearing and arraignment on the criminal charge Nov. 9.
Wakefield allegedly ignored the firm’s prohibition on Treasury bond trades that involved risk to its funds or any other speculative securities trading and to try to cover up losses he engaged in additional trading resulting in still more losses. IFS only permitted Wakefield to short Treasuries to insulate IFS from the interest rate risk inherent in its municipal bond positions held at risk.
Around May 2019, Wakefield is alleged to have taken steps to “conceal” the trades from the firm that is referred as “Company A” and its trade clearing brokers by entering into “fake off-setting trades into Clearing Broker l's order management systems to create the false impression” that he had profitably traded through Clearing Broker 2 and “thereby concealed that he had engaged in an unauthorized proprietary United States Treasury bond trade,” the criminal complaint reads.
To cover up the alleged embezzlement of $820,000 based on fictitious commissions, the criminal complaint alleges Wakefield “knowingly falsified Company A's books and records to make it appear that the trades on behalf of Company A's customers generated profits when he knew that was not the case.”
Wakefield is also accused of violating federal law related to interstate commerce by using the internet to log into a Bloomberg LP electronic platform to sell short Treasury bonds with a par value of $10 million, the complaints allege.
Wakefield
The civil investigation is being conducted by the SEC’s Public Finance Abuse Unit and Chicago regional office and remains ongoing. The criminal probe involves the Federal Bureau of Investigation in addition to the U.S. Attorney. FINRA is also participating.
At the time, Wakefield declined to comment on the allegation when The Bond Buyer reached him on the phone. His criminal attorneys did not respond to a request for comment Wednesday.
At the time, the broker-dealer operated five corporate offices. In addition to its Atlanta headquarters, main offices were in Chicago, New York, Tampa and Miami Lakes, Florida. The equity trading desk was located in Orlando and the fixed-income desk was in Chicago. The firm was founded in Pennsylvania in 1993 and became a member of FINRA in 1996. IFS Securities Inc. described itself as a full-service independent broker-dealer with retail and wholesale advisory networks.
