Green affected trades in collateralized mortgage obligation (CMO) bonds in his member firmís proprietary trading account to conceal inventory positions and create the false appearance of profitability through the use of fictitious and pre-arranged trades. In some cases, no contra-party had agreed to the transaction at the time Green submitted an order, and in other cases, Green had agreed to repurchase the security from the contra-party at an agreed-upon price that guaranteed a profit to the contra-party, causing the beneficial ownership to remain with Green.
Green devised a strategy that not only hedged and concealed the positions, but circumvented trading capital and inventory limits his firm set, and created the impression of profitable trading by extending the settlement dates for certain bonds and coordinating fictitious transactions with other broker-dealers.
Green received compensation based upon the overall profitability of the firmís proprietary account, and because Greenís scheme created the appearance of profitability, he received compensation based upon the apparent profits; Green received $7,353,000, which resulted in an overstatement of the firmís net capital and caused the firm to cease business. Green caused the firmís books and records to be inaccurate. In addition, he failed to respond to FINRA requests for documents and information, and to appear for on-the-record testimony.