FINRA bars former Morgan Stanley broker over $190M Venezuela bond trades
A former Morgan Stanley broker who had been one of the largest producers in the firm’s New York branch has been banned from the industry under a settlement with FINRA.
John Batista Bocchino secretly made 300 Venezuelan currency bond trades worth $190 million after the firm forbade such transactions out of concerns about money laundering, according to FINRA. The regulator announced settlements this week with Bocchino and his former sales assistant.
Without admitting or denying the allegations, Bocchino accepted the lifetime bar. The assistant, Rafael Barela Jacinto, agreed to a $10,000 fine and a one-year suspension. Investigators said Bocchino placed trades in proprietary accounts he set up then switched them to the accounts of 13 concealed clients between 2011 and 2012.
The inflation-plagued country’s System of Foreign Currency Transactions (SITME) led to a jump in public debt, arbitrage and scams, according to a study by The Wharton School. And FINRA pursued more anti-money laundering cases than those centering on any other issue in 2016, a record year for fines.
“Mr. Bocchino concealed his customers’ identities in order to engage in trading his firm prohibited,” FINRA Acting Head of Enforcement Susan Schroeder stated.
The former Morgan Stanley broker, she added, “evaded the appropriate scrutiny of his firm’s AML and compliance departments by falsely creating the appearance of compliance.”
On the heels of a record-breaking year in enforcement, the regulator takes aim at cybersecurity, anti-money laundering policies and protection for senior clients.April 20
Robert Cook detailed his multi-year overhaul aimed at easing compliance, revisiting old rules and rooting out bad actors.May 17
Three firms have fired the broker, whose former clients have won $494,000 in settlements.May 3
OUT OF THE JOB
Lawyers who represented Bocchino and Barela before FINRA did not respond to requests for comment. FINRA settlements forbid respondents from making any public statements denying the factual basis for the case.
However, Bocchino initially denied the allegations when first informed of FINRA’s recommendation of discipline in January 2016. He made the trades “on a broker-to-broker basis as per instructions from clients,” he said in a comment included on his BrokerCheck.
For his part, Barela wrote that he had been “following instructions” from clients and management by sending account number information to Morgan Stanley’s back-office staff.
The firm fired Bocchino and Barela from the Manhattan branch in 2012, accusing them of making trades for clients “within accounts other than their own,” according to BrokerCheck. Official filings about their dismissals prompted the FINRA investigation, documents from the settlement show.
A Morgan Stanley spokeswoman said the firm “terminated Bocchino in March 2012, reported his conduct to the relevant regulators, and has been cooperating in FINRA’s investigation since its inception."
Both moved on to UBS, where they worked until September. Bocchino resigned after the regulator issued its complaint that month, while UBS fired Barela. A spokeswoman for UBS declined a request for comment on the case.
Bocchino carried out the unauthorized trades between May 2011 and March 2012, investigators said. As a top producer specializing in clients from South America, he earned gross pay of $2.3 million in 2011 and nearly the same amount in the first three months of 2012, according to investigators.
The firm restricted SITME trades starting in 2010 to ensure no one used the trades to convert Venezuelan Bolívars into U.S. dollars, FINRA’s complaint said. Black-market exchange rates have skyrocketed to as high as a 3,000-1 ratio amid political turmoil and widespread food shortages.
Bocchino secretly acted on behalf of 13 broker-dealers, foreign banks and investment firms in executing the trades, according to FINRA. The regulator has fined two out of the five U.S. firms over Venezuelan bond trades, and three of the 13 firms were not even Morgan Stanley clients, the complaint said.
Bocchino skirted the firm’s policy by booking the trades through so-called nominee accounts in the name of five other firms, according to investigators. He would then ask the settlement desk to switch the nominee firms’ transactions to his clients’ custodial accounts, investigators said.
FINRA accused Bocchino of unethical conduct, unauthorized activity and false records, and the regulator accused his former sales assistant of false records. The pair consented to the public disclosure of the findings in the case, even though they neither admitted nor denied them.
The announcement followed revelations that Goldman Sachs and Japanese investment bank Nomura Securities bought massive amounts of government bonds, Reuters reported. Goldman Sachs purchased $2.8 billion of the bonds, while Nomura bought $100 million, according to sources cited by the outlet.