Victim in bond fraud case says he'd still deal with a liar
A portfolio manager for an investment firm allegedly defrauded by a former Cantor Fitzgerald managing director said he might still work with a trader who lied to him — depending on the circumstances.
Eric Marks of Ellington Financial took the stand for the government on April 26 in the trial of David Demos, who is accused of ripping off Ellington and other firms by misrepresenting the prices of mortgage-backed bonds during negotiations. Demos was charged with defrauding investors in five trades between May 2012 and January 2013, including two with Ellington.
The first is a September 2012 transaction when Cantor bought two bonds from an investment manager and sold them to Ellington. Prosecutors allege Demos lied to Ellington about the price Cantor paid for the bonds, yielding a profit of more than $74,000. He’s also accused of misrepresenting the price at which Cantor bought a bond that it sold to Ellington in January 2013, netting Cantor more than $133,000.
During over two hours on the stand, Marks said he wanted to buy bonds as "cheaply as possible," and that he would have liked to have known Cantor's true purchase prices before buying the securities. Still, he said, he might continue to do business with him.
"If he had a good opportunity, I would trade with him," Marks said. "If my firm was comfortable with that, I would be willing to do so."
Marks testified for prosecutors last year in the trial of three former Nomura Holdings Inc. traders who were charged with similar conduct. Jurors cleared them of the vast majority of the 27 charges, fully acquitting one, convicting one of conspiracy and failing to reach a verdict on a few other counts. A retrial is scheduled for next month.
Marks said he'd probably change his negotiating tactics if he knew a trader had lied to him.
"I might have to be more guarded about the information I share," Marks testified. "I would be more wary of statements made to me."
Demos' lawyers have argued that their client dealt with highly sophisticated investors. Under cross examination from defense attorney Alex Spiro, Marks said he was trained to be careful of statements made in negotiations.
"When my boss trained me," Marks said, "you have to assume they're lying to you."
Marks also admitted under questioning from Spiro that he sometimes used negotiation tactics of his own, such as embellishment.
"Give me some of your moves," Spiro asked.
"I would say, my boss doesn't really like it here, but I can pay you X," Marks said.
"And your boss might love it there, right?" Spiro asked.
"It’s possible, yes," Marks said.
"And you haven't been arrested for that, right?" Spiro asked.
"No," Marks replied.
Demos was charged with five counts of securities fraud, each of which carries a potential sentence of 20 years in prison. His trial in federal court in Hartford, Conn., is scheduled to run through next week.