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May 27, 2018

A Suspicious Bond

John Finotti | 8/1/2000
When employees of Fort Lauderdale-based SunCoast Capital gathered for a Christmas party two years ago, Deborah J. Breckenridge had plenty to celebrate. As one of the firm's bond brokers, Breckenridge had completed an especially stellar year, thanks to one client -- a young trader at New York Life Insurance Co. In recognition as the firm's 1998 "heavy hitter," Breckenridge received a baseball bat and a Rolex watch.

These days Breckenridge and SunCoast don't have much to celebrate. New York Life has fired Breckenridge's young client -- 27-year-old Anthony Shen -- for allegedly receiving cash and gifts from brokers at as many as six securities firms in exchange for buying and selling bonds at prices that were higher or lower than current market prices. New York Life, the nation's fifth-largest insurer, says the alleged yearlong kickback scheme cost it between $8 million and $15 million.

As a result, the Securities and Exchange Commission and the U.S. attorney's office in New York have launched investigations. Sources familiar with the probes say government investigators are exploring whether brokerages, including SunCoast, paid cash kickbacks or other rewards to Shen in exchange for more favorable prices on bond trades.

New York Life says it has already met with three brokerages -- PaineWebber Group, Nomura Securities International and Greenwich Capital Markets.

Shen was dismissed in November, but the episode only recently surfaced in a Wall Street Journal article. A New York Life spokesman said the matter was detected internally and investigated by the insurance company's audit department, which was assisted by Pricewaterhouse-Coopers. "We're convinced, based on the evidence of our investigation, that there was wrongdoing by the trader, who participated in a fraudulent scheme, off-market trading scheme, and we believe received kickbacks, gifts and entertainment," says New York Life spokesman William Werfelman.Shen declined to comment, but his attorney, Sean O'Shea, says he did nothing wrong.

SunCoast Capital Group was founded in 1992 by three young partners: David A. Zwick, Todd J. Cohen and Peter Cooper. It specializes in trading bonds. Two years ago, SunCoast launched the CRA Qualified Investment fund, an investment vehicle for banks to qualify for community lending credits under the Community Reinvestment Act (CRA) of 1977, which is designed to promote lending and deposit activities in moderate- and low-income neighborhoods. The fund suffered a setback earlier this year when Kenneth Thomas, a Miami-based national expert on community lending, resigned as chairman.

According to the Florida Department of Banking and Finance, Breckenridge's employment at SunCoast ended in January. She has left the Fort Lauderdale area and could not be reached for comment. In a statement, SunCoast says it is cooperating with regulators and that its own internal review of the New York Life trades found nothing wrong. The firm declined further comment.

One question investigators are exploring is why Shen, a trader at a huge New York insurance company who bought blocks of bonds ranging from $50 million to $100 million, purchased bonds through small regional brokerages such as SunCoast. Typically, small firms don't have the capital to support holding such large inventories of bonds. Instead, if a large order came through, they would have to acquire the bonds from a large brokerage and resell them.

O'Shea says Shen was told to buy bonds through SunCoast. "He was given explicit instructions by a high-level executive at New York Life," O'Shea says. Who? O'Shea says it was Richard Kernan, New York Life's executive vice president and chief investment officer. Kernan did not return phone calls, and a spokeswoman declined to comment.

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