U.S. Said to Prepare Case Against Former Goldman MBS Trader

(Bloomberg) -- U.S. securities regulators are investigating and preparing to bring a civil case against Edwin K. Chin, a mortgage bond trader who was fired from Goldman Sachs Group Inc. in 2012, according to people with knowledge of the matter.

The U.S. Securities and Exchange Commission and the U.S. Justice Department have been cooperating on a probe of Chin's activities at Goldman Sachs, said the people, asking not to be identified because they're not authorized to speak publicly. The SEC is preparing the case, and the two sides may try to reach a settlement, the people said.

Investigators found Chin may have inflated prices on mortgage bonds acquired by the bank, allowing him to trade the securities for a greater profit, the people said. The trades occurred after the 2008 financial crisis, the people said.

Chin didn't respond to requests for comment. Representatives of Goldman Sachs, the SEC and the Justice Department declined to comment.

The U.S. has been investigating possible wrongdoings in the trading of mortgage-backed securities and other securitized debt for a number of years. Pursuing Chin's case as a civil suit may represent a change in the government's approach after a federal appeals court last year overturned former Jefferies & Co. trader Jesse Litvak's criminal conviction for lying to buyers about how much the bank paid for bonds he was selling.

Dismissed

Traders at banks including JPMorgan Chase & Co., Royal Bank of Scotland Group Plc, Nomura Holdings Inc., Deutsche Bank AG and Barclays Plc have been put on leave or dismissed over the past three years amid investigations into the market, according to people with knowledge of those moves and Financial Industry Regulatory Authority records. More than 20 traders across Wall Street have lost their jobs amid the investigations, according to people with knowledge and employment records obtained by Bloomberg.

Chin joined Goldman Sachs in 2003, according to his Finra records, and was named a managing director in 2011. A U.S. Senate report in 2011 found a group of traders he worked with had tried to manipulate prices of derivatives linked to subprime home loans in 2007 for their own benefit. 

The bank fired Chin in 2012 amid allegations that he had sold securities with his manager's consent and then repurchased some of those securities through another party without telling his boss, according to disclosures maintained by Finra. The filing doesn't say who made the allegations.

After leaving the bank, Chin was hired by Tilden Park Capital Management, a hedge fund founded by his former Goldman Sachs colleague Joshua Birnbaum. Chin focused on mortgage-backed securities at the firm and left earlier this year, people with knowledge of the matter said. His departure was voluntary, said one of the people.

--With assistance from Dakin Campbell Matt Robinson Heather Perlberg and Chris Dolmetsch To contact the reporter on this story: Matt Scully in New York at mscully17@bloomberg.net. To contact the editors responsible for this story: Nabila Ahmed at nahmed54@bloomberg.net, Dan Wilchins, Faris Khan