Feds' Fraud Case Based On Faulty Assumptions, Jury Hears

By Lauraann Wood · Listen to article

Law360 (February 6, 2024, 9:28 PM EST) -- A former bond trader argued Tuesday that an Illinois federal jury should clear him of accusations that he claimed inflated commissions and tanked his former employer with $30 million in losses because trial evidence proved prosecutors "jumped to conclusions" about his trades.

The jury should reject the U.S. government's fraud case against former IFS Securities Inc. trader Keith Wakefield because trial evidence proved the prosecutors based their case on an "imperfect understanding" of the broker dealer's trading system and assumptions about the reasons for his trading activity between 2017 and 2019, according to Wakefield's attorney, James Vanzant of Blaine & Vanzant LLP.

Vanzant urged the jury to set aside any cognitive biases or logical fallacies that could improperly influence its discussions, arguing that recognizing and identifying them will allow the jurors to "start from scratch" in the deliberation room. That's important, because "the problem in this case is that no one started from scratch," Vanzant said.

"Everyone from [IFS CEO] Alex McKenzie, [technology chief] Kristiaan Sheedy, the FBI all the way down has jumped to conclusions based on somebody else's opinion," Vanzant said. "Not a single person has gone back to the beginning, where it all started."

Prosecutor Sean Franzblau, however, blasted that assertion. Wakefield has presented significantly different explanations for the trading conduct that led to his former employer's demise, but they're all "nonsense" and he hasn't presented "one shred of evidence" to support them, Franzblau said.

Wakefield also lied "again and again" as he testified during trial and tried to convince the jury that his fake trades were simply efforts to cover his hedges and correct multimillion-dollar data entry mistakes, Franzblau said. The former trader "told multiple lies in multiple ways, but it all boils down to the same thing: He's trying to confuse you," the prosecutor said.

"He cannot explain away the evidence in a way that makes sense, so he's trying to kick up sand and blind you from seeing what is directly in front of you," he told the jury. "He wants you to believe that this is so complicated that no one in the world can understand it, except Keith Wakefield."

The government asserted during trial openings that Wakefield caused the now-shuttered IFS and its customers to lose tens of millions of dollars by claiming "hugely inflated" commissions on secondary bond market trades he brokered and using IFS' money to enter false and unauthorized trades that "wildly exceeded the firm's risk limitations." He tried to recoup initial losses by making more bond trades, but those just resulted in further losses, prosecutors said.

But trial evidence proved that the trades prosecutors called fake were simply Wakefield's efforts to balance his boss's desire to continuously earn money for the firm against trading ticket limits imposed by INTL FCStone, now known as StoneX Group Inc., one of the firm's clearing houses.

"What the government is calling fake trades in order to create these fake profits, that is normal everyday trade limit management," Vanzant told the jury. "But nobody stopped to ask questions. Nobody asked the details."

Trial evidence also demonstrated that Wakefield reported his trades to regulators as required, that IFS' books always matched, and that his trades were always reviewable in a report IFS received every month.

But Franzblau urged the jury to reject Wakefield's assertions, arguing they're "totally contradicted" by the witnesses and documents that were presented during trial. The idea that IFS could have prevented things by closing its positions differently or looking at any reports is like "an arsonist lighting a forest fire and then complaining that the fire department was wasting water putting it out," the prosecutor argued.

It's true that Wakefield is an experienced trader who knew more than others at IFS, but "that's why he was able to trick them for so long," Franzblau said. Assessing the trial evidence should only lead the jury to take Wakefield at his own word when he described his activity as "fraudulent" during an August 2019 phone call he didn't know the FBI was recording, he said.

The jury left after closings and will begin deliberations Wednesday morning.

Wakefield is represented by Holly N. Blaine and James G. Vanzant of Blaine & Vanzant LLP.

The government is represented by Sean Franzblau and Bradley Tucker of the U.S. Attorney's Office for the Northern District of Illinois.

The case is USA v. Keith Wakefield, case number 1:21-cr-00614, in the U.S. District Court for the Northern District of Illinois.

--Editing by Dave Trumbore.

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