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Ex-Bond Trader From Westport Accused Of Bilking Investors Out Of Millions

Gavel Photo Credit: File

WESTPORT, Conn. — A 35-year-old bond trader from Westport has been indicted by a federal grand jury on six counts of securities fraud in an alleged scheme that caused millions of dollars in losses for investors, prosecutors announced Friday.

The indictment against David Demos, who formerly worked for Cantor Fitzgerald & Co., was returned Wednesday in New Haven, and he was to be arraigned at 3:30 p.m. Friday before U.S. Magistrate Judge Sarah A. L. Merriam in New Haven.

If convicted, Demos faces a maximum of 20 years in prison on each count.

He was a trader and managing director at Cantor Fitzgerald, which has offices in Darien and New York City, from November 2011 until his employment was terminated in February 2013.

According to the indictment, Residential Mortgage-Backed Securities are collections of mortgages and home equity loans, which are grouped together and sold as packages among banks, money managers, pension funds and others.

Investors in RMBS receive monthly payments, based on the extent to which homeowners repaid their lenders. The payments to RMBS investors continue until the homeowners repay their mortgage debt, refinance or default.

RMBS are not publicly traded on an exchange and pricing information is not publicly available. Instead, buyers and sellers of RMBS use broker-dealers, such as Cantor Fitzgerald, to execute individually negotiated transactions.

The indictment alleges that Demos defrauded customers by fraudulently inflating the purchase price at which Cantor Fitzgerald could buy an RMBS bond to induce their victim-customers to pay a higher price for the bond, and by fraudulently deflating the price at which Cantor Fitzgerald could sell a RMBS bond to induce their victim-customers to sell bonds at cheaper prices.

It is alleged that, as a result of this scheme, Cantor Fitzgerald and Demos profited illegally, and victim-customers sustained millions of dollars of losses.

The victims of this alleged scheme include asset managers and firms affiliated with or subsidiaries of recipients of funds from the U.S. Government’s Troubled Asset Relief Program.

The announcement was made by U.S. Attorney for Connecticut Deirdre M. Daly; Christy Goldsmith Romero, special inspector general for the Troubled Asset Relief Program; Patricia M. Ferrick, special agent in charge of the New Haven Division of the FBI; Laura S. Wertheimer, inspector general for the Federal Housing Finance Agency; and Fred Gibson, acting inspector general for the Federal Deposit Insurance Corp.

The case is part of the ongoing efforts of President Barack Obama’s Financial Fraud Enforcement Task Force’s Residential Mortgage-Backed Securities (RMBS) Working Group, a federal and state law enforcement effort focused on investigating fraud and abuse in the RMBS market that helped lead to the 2008 financial crisis and in the federal government’s bailout.

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