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Former Merrill Lynch Trader Settels with SEC

March 30, 1990

WASHINGTON (AP) _ A former top mortgage-backed securities trader at Merrill Lynch agreed to a nine-month suspension Thursday to settle allegations that he made an off-the- books trade that cost the company $85 million.

The Securities and Exchange commission announced it had agreed to accept the settlement offer of Howard A. Rubin, of New York, who neither admitted nor denied wrongdoing.

The SEC had accused him, in an administrative action, of failing to disclose to Merrill Lynch Pierce Fenner & Smith Inc. in 1987 that he had made a $500 million proprietary trade in stripped mortgage-backed securities.

Such securities are backed by mortgages but unlike conventional bonds, the interest and principal are sold off separately.

The trade obligated Merrill Lynch, which lost approximately $85 million on the deal, to sell $500 million in Government National Mortgage Association interest-only securities, according to the SEC.

″The importance of this case is that if this had happened at a firm that was not as well capitalized as Merrill Lynch, it would forced them to liquidate, harming the investing public,″ said Martin A. Kuperberg, associate regional administrator of the SEC’s New York regional office.

Rubin, who left Merrill Lynch in 1987, was not available for comment.

His lawyer, Ira Lee Sorkin, said that at the time the trade became known ″there were wild allegations of fraud. This order today identifies it as a books and records problem - nothing more - which he neither admits or denies.″

In addition to a nine-month suspension from association with any broker, dealer, investment company, investment adviser or municipal securities dealer, Rubin will be barred from acting in a supervisory capacity for at least four years.

Rubin joined the mortgage trading department at Bear Stearns in November 1987.

″While at Bear Stearns, he has been an exemplary employee,″ the securities firm said in a statement that added: ″We look forward to his return and reassociation with Bear Stearns in nine months.″

At Merrill Lynch, a spokesman, Bill Clark, said: ″We’re gratified that the SEC has imposed a serious sanction which should serve as a deterrent for this type of conduct.″

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