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Regulation and Compliance > Litigation

Barred Broker Who Bankrupted BD Is Charged With Fraud: DOJ

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What You Need to Know

  • A former broker was charged with securities fraud by the DOJ and SEC in separate actions on Thursday.
  • If he is found guilty of the Justice Department's felony charge, he faces a maximum of 20 years in prison.
  • The ex-broker was barred from the industry by FINRA in 2019.

An ex-broker who bankrupted his former firm and was barred from the industry by the Financial Industry Regulatory Authority has now been charged with securities fraud by the Justice Department and Securities and Exchange Commission in separate actions filed on Thursday.

Keith Wakefield, 48, of Chicago was charged with one count of felony securities fraud for allegedly engaging in unauthorized speculative bond trading that cost his employer, Atlanta, Georgia-based broker-dealer International Financial Solutions (IFS) Securities, and others more than $30 million, according to the U.S. Attorney’s Office for the Northern District of Illinois and the criminal complaint it filed in U.S. District Court there.

The charge is punishable by a maximum sentence of 20 years in federal prison, according to John R. Lausch Jr., U.S. attorney for the Northern District of Illinois. Arraignment in U.S. District Court in Chicago was not set yet, according to Lausch.

Wakefield worked as the head of fixed income trading in the Chicago office of a BD the DOJ’s complaint didn’t name but was IFS Securities, according to his report on FINRA’s BrokerCheck website and the separate civil action that was filed by the SEC in the same court on Thursday.

Wakefiled was a broker with IFS Securities from June 2011 to August 2019 and for affiliated IFS Capital Markets from June 2018 to August 2019. IFS Securities terminated him due to allegations of fraud and placing fictitious trades, according to a disclosure on his report.

FINRA went on to bar him from associating with any FINRA member firms in any capacity after he allegedly “refused to appear for testimony” as requested by the industry self-regulator while it was investigating his actions at IFS, according to a FINRA letter of acceptance, waiver and consent he signed on Sept. 11, 2019 and signed by FINRA on Sept. 25, 2019.

Wakefield’s former boss at IFS, Alexys Mckenzie, and his attorney did not immediately respond to requests for comment on Friday. Mckenzie was CEO and owner of IFS, according to a report the firm filed with FINRA saying it was no longer registered with FINRA after filing for Chapter 11 bankruptcy in April 2020. Mckenzie is currently serving as an advisor and broker for San Blas Securities, according to BrokerCheck.

Fake Trades and Commissions

From 2017 to 2019, Wakefield knowingly and fraudulently engaged in unauthorized speculative trading in U.S. Treasury bonds using his firm’s trading accounts, causing more than $30 million in losses to the employer and its counterparties, the DOJ’s complaint alleged.

Wakefield tried to conceal his unauthorized trades and losses by entering fake off-setting trades into a clearing broker’s order system, creating the false impression that he had profitably traded via a different clearing broker, the DOJ’s complaint alleged.

Wakefield also allegedly embezzled about $820,000 from his firm by falsifying the company’s books and records to create fake commissions that Wakefield knew were not actually owed to him, according to the DOJ.

The SEC’s Action

The SEC’s parallel action made the same allegations against Wakefield. According to that complaint, Wakefield’s fraud ended in August 2019 when IFS was unable to honor millions of dollars in unauthorized fixed income securities trades executed by Wakefield with more than one dozen counter-parties. IFS was, as a result, forced to close its business, withdraw its registration as a BD and file for bankruptcy, the SEC noted.

The SEC’s complaint charged Wakefield with violations of the antifraud provisions of the Securities Act of 1933 and Securities Exchange Act of 1934.

He agreed to settle the SEC’s charges by consenting to a permanent injunction and to pay disgorgement plus prejudgment interest and a civil penalty in amounts to be determined by the court at a later date, the SEC said. The settlement is subject to court approval.

The SEC had earlier issued an order stating it censured IFS for acting negligently in selling bonds and selling them at a price below market price for comparable bonds, violating securities laws. The firm was also ordered to pay a civil penalty of $50,000 to the SEC, of which $12,500 was to be transferred to the Municipal Securities Rulemaking Board.