Ill. Jury Convicts Trader Of $30M Bond Fraud

An Illinois federal jury on Wednesday convicted a former bond trader of tanking his Atlanta-based former employer by claiming inflated commissions on his trades and entering false and unauthorized trades that caused $30 million in losses. The jury deliberated for about six hours before it found former IFS Securities Inc. trader Keith Wakefield guilty of securities and wire fraud over trading activity between 2017 and 2019 that Wakefield testified was not an effort to enrich himself but rather cover his hedges and fix significant mistakes he'd made while trading U.S. Department of Treasury and municipal bonds. The government claimed during trial that Wakefield, IFS' former head of fixed income trading, caused IFS and its customers to bleed money by claiming "hugely inflated" commissions on secondary bond market trades he brokered and using IFS' money to enter false and unauthorized trades that "wildly exceeded the firm's risk limitations." Wakefield tried to recoup initial losses by making more bond trades, but those just resulted in further losses, prosecutors said. Wakefield also embezzled about $820,000 from IFS by reflecting false commissions, the government claims. In one instance, the former trader claimed a $64,000 profit for one of his trades when the actual profit was only $1,848. The inflated claim caused IFS to pay him thousands of dollars in unearned commissions, the government said. The government's case centered largely on a recorded August 2019 phone call between Wakefield and former IFS technology chief Kristiaan Sheedy, in which the former trader told Sheedy to "think fraudulent" as he explained his trading activity. Wakefield testified during trial that he wasn't acknowledging that he'd been engaging in fraud but was simply trying to explain his trades in a way Sheedy could grasp. Wakefield also testified that his trades preceding IFS' demise stemmed from efforts to cover a multimillion-dollar buy he couldn't enter by the end of a trading day and to correct a "fat-finger" ticketing error that he still struggles to understand or explain. While on the stand, the former trader said his multimillion-dollar buy mistake happened because he'd sold about $40 million worth of 10-year bonds into the market intending to buy them back at the end of the day when prices had spiked and interest rates had decreased. He testified that an all-day meeting with IFS' investment banker and a public official tied him up for several hours, and the market had closed by the time he returned to his desk to buy the bonds back. Wakefield also claimed on the stand that wearing multiple hats at work and juggling personal family concerns led him to log a trade in June 2019 as though its price per share was thousands of dollars different from its actual contract price, which made IFS' trading account seem as though it had $1.8 million in it and "was wrong from the moment [he] saw it." He said he tried to enter another trade to create the opposite effect of his "fat-finger" trade, and eventually turned his 10-year bonds into 30-year bonds, but neither approach worked to fix his mistake because market prices continued to move unfavorably. However, no one sought those details or considered those factors before IFS executives and government officials "jumped to conclusions" about Wakefield's trading, his attorney, James Vanzant of Blaine & Vanzant LLP, asserted during closing arguments. Instead, the government based its charges on an "imperfect understanding" of IFS' trading system and incorrect assumptions about the nature of Wakefield's trades, the attorney argued. Assistant U.S. Attorney Sean Franzblau called those assertions "nonsense" during trial closings, saying Wakefield's testimony was simply an effort to confuse the jury because he knew he couldn't explain the trial evidence in a way that made sense. The government also blasted the former trader's argument that IFS could have prevented its losses by closing its positions differently or looking at certain reports, saying the assertion was like "an arsonist lighting a forest fire and then complaining that the fire department was wasting water putting it out." Wakefield is represented by Holly N. Blaine and James G. Vanzant of Blaine & Vanzant LLP. The government is represented by Sean Franzblau and Bradley Tucker of the U.S. Attorney's Office for the Northern District of Illinois. The case is USA v. Keith Wakefield, case number 1:21-cr-00614, in the U.S. District Court for the Northern District of Illinois.