Day Three: Part 2 of the scenario
On Monday evening you came into the office to find an email from Newby which suggested that Rich Mann, a proprietary trader, has been involved in suspect trading activity. Your own initial inquiries raised your suspicions further.
At 07.30 on Tuesday you request IT's assistance to access Mann's emails from the last three months. You also conduct a review of Mann's trading history from the last three months.
By 09.30 you have discovered numerous emails between Rich Mann and David Sligh (a trader at LAX Securities, the counterparty to the ABZ trade).
The emails reveal that Rich Mann and Sligh appear to have been discussing strategies to artificially move the prices of the equities which make up a significant part of their prop books.
One particular email from Mann to Sligh stated:
"Selling some minerals tomorrow. Show me some love at 199 please. You owe me after I helped you with your crappy petrol last week :)"
Other emails between the two traders reveal a pattern of similar exchanges dating back three months.
Mann's emails and trading history show that after he placed sell orders for various companies, Sligh would place a buy order at one or two points lower than Mann's sell order. The total quantity of the buy orders was many times greater than the sell order. Sligh would cancel the buy orders shortly after placing them and repeatedly place and cancel these buy orders until Mann's sell order had been successfully sold. It looks like their aim was to influence investors' trading strategies by encouraging buyers to buy at an artificially high price.
You are aware that Compliance and HR regularly monitor a sample of emails sent and received by Big Bank's traders. You have also reviewed all exchange and FSA trading queries for the last six months which show that a higher proportion were associated with Mann than with other traders at Big Bank. Your inquiry reveals that a number of queries were made as to the trading prices at which Mann's trades were executed. However Big Bank's records show that no substantive problems were identified, and consequently no changes had been made to Big Bank's procedural or supervisory systems.
