DOB: RBS Securities Inc - Consent Order

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IN THE MATTER OF: 

RBS SECURITIES INC.

CRD No. 11707


   

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CONSENT ORDER

DOCKET NO. CO-16-8058-S

I. PRELIMINARY STATEMENT

WHEREAS, the Banking Commissioner (“Commissioner”) is charged with the administration of Chapter 672a of the General Statutes of Connecticut, the Connecticut Uniform Securities Act (“Act”), and Sections 36b-31-2 to 36b-31-33, inclusive, of the Regulations of Connecticut State Agencies (“Regulations”) promulgated under the Act;
 
WHEREAS, RBS Securities Inc. (“Respondent” or “RBSS”) is a Delaware corporation with a principal place of business at 600 Washington Boulevard, Stamford, Connecticut 06901.  At all times pertinent hereto, Respondent has been registered in Connecticut as a broker-dealer under the Act.  Prior to April 2009, Respondent was known as Greenwich Capital Markets, Inc.;
 
WHEREAS, Respondent was a large lead underwriter of residential mortgage backed securities (“RMBS”) prior to the 2008 financial crisis.  As a lead securities underwriter, Respondent was responsible for conducting due diligence on the pools of residential mortgage loans that collateralized the RMBS to, among other things, ensure that the statements in the prospectus and prospectus supplements for the publicly offered RMBS (collectively, the “Offering Materials”) were complete and accurate in all material respects;
 
WHEREAS, the Commissioner, through the Securities and Business Investments Division (“Division”) of the Department of Banking and the Office of the Attorney General, conducted an investigation of Respondent pursuant to Section 36b-26(a) of the Act to determine whether Respondent had violated, was violating or was about to violate provisions of the Act or Regulations or any order thereunder;
 
WHEREAS, the violations alleged herein would support the initiation of administrative proceedings by the Commissioner pursuant to Sections 36b-15(a), 36b-27(a), 36b-27(b) and 36b-27(d) of the Act;
 
WHEREAS, Section 36b-31(a) of the Act provides, in relevant part, that “[t]he commissioner may from time to time make . . . such . . . orders as are necessary to carry out the provisions of sections 36b-2 to 36b-34, inclusive”;
 
WHEREAS, Section 36b-31(b) of the Act provides, in relevant part, that “[n]o . . . order may be made . . . unless the commissioner finds that the action is necessary or appropriate in the public interest or for the protection of investors and consistent with the purposes fairly intended by the policy and provisions of sections 36b-2 to 36b-34, inclusive”;
 
WHEREAS, the Commissioner finds that the entry of this Consent Order is necessary or appropriate in the public interest or for the protection of investors and consistent with the purposes fairly intended by the policy and provisions of the Act;
 
WHEREAS, an administrative proceeding initiated under Sections 36b-15 and 36b-27 of the Act would constitute a “contested case” within the meaning of Section 4-166(4) of the General Statutes of Connecticut;
 
WHEREAS, Section 4-177(c) of the General Statutes of Connecticut and Section 36a-1-55(a) of the Regulations of Connecticut State Agencies provide that a contested case may be resolved by consent order, unless precluded by law;
 
WHEREAS, without holding a hearing and without trial or adjudication or finding of any issue of fact or law, and prior to the initiation of any formal proceeding, the Commissioner and Respondent have reached an agreement, the terms of which are reflected in this Consent Order, in full and final resolution of the matters described herein;
 
AND WHEREAS, Respondent, through its execution of this Consent Order, specifically assures the Commissioner that none of the violations alleged in this Consent Order shall occur in the future.   

II. CONSENT TO WAIVER OF PROCEDURAL RIGHTS

WHEREAS, Respondent, through its execution of this Consent Order, voluntarily waives the following rights:

1. To be afforded notice and an opportunity for a hearing within the meaning of Sections 36b-15(f) and 36b-27 of the Act and Section 4-177(a) of the General Statutes of Connecticut;
2. To present evidence and argument and to otherwise avail itself of Sections 36b-15(f) and 36b-27 of the Act and Section 4-177c(a) of the General Statutes of Connecticut;
3. To present its position in a hearing in which it is represented by counsel;
4. To have a written record of the hearing made and a written decision issued by a hearing officer; and
5. To seek judicial review of, or otherwise challenge or contest, the matters described herein, including the validity of this Consent Order.

III. JURISDICTION AND CONSENT TO ENTRY OF CONSENT ORDER
 
WHEREAS, Respondent admits the jurisdiction of the Commissioner and consents to the entry of this Consent Order by the Commissioner without admitting or denying the following allegations of the Commissioner.
    
IV. FACTUAL ALLEGATIONS
 
A. Background

1. Respondent is currently, and was at all times relevant to this Consent Order, registered as a broker-dealer in Connecticut.
2.
This Consent Order relates to all publicly offered RMBS issued between January 1, 2005 and December 31, 2008 (the “Relevant Period”) for which Respondent served as lead securities underwriter (the “Securities”) as more fully described herein.
  
B.  The RMBS at Issue and Respondent’s Role as
Lead Securities Underwriter
   
3. An RMBS is a type of mortgage-backed security that is secured by one or more collateral pools of residential mortgage loans that are organized into classes or tranches of securities within a uniquely named RMBS trust (“RMBS deal”).  Investors in these securities are entitled to the cash flows, with varying degrees of priority, from the underlying mortgage loans, which primarily consist of the interest and principal payments made by the borrowers.
4. During the Relevant Period, in all cases, multiple Securities were offered through each RMBS deal.
5. During the Relevant Period, Respondent served as lead securities underwriter of approximately 250 RMBS deals supported by nearly 500 collateral pools in which Securities were issued with an original face value of over $250 billion, a large portion of which were publicly offered.  As of September 2015, those publicly offered Securities supported by the collateral pools had suffered many billions in realized and projected losses due to loan defaults and inadequate proceeds from the liquidation of foreclosed real property.
6. Respondent underwrote RMBS deals that were either “proprietary” or “non-proprietary.”
7. For proprietary RMBS deals, Respondent served as lead underwriter for the deal, and other RBSS-related entities served as the sponsor and depositor for the deal.  The sponsor acquired the mortgage loans from originators and transferred the mortgage loans to the depositor.  The depositor, a special purpose entity, then transferred the mortgage loans to the trust, which issued various classes or tranches of Securities.
8. By contrast, for non-proprietary RMBS deals, Respondent served as lead underwriter, and other unrelated third parties served in the roles of sponsor and depositor.
9. The Securities were offered to the public through the Offering Materials.  The Offering Materials were required to be complete and accurate in all material respects so that prospective RMBS investors could make informed investment decisions.  To that end, the Offering Materials explained the general structure of the investment, provided certain information concerning the mortgage loans in the collateral pools underlying the Securities, described the loan underwriting guidelines represented to be used by lenders in connection with the origination of the mortgage loans backing the Securities, and detailed various representations concerning the loans’ compliance with loan underwriting guidelines and applicable law.
10. As lead underwriter for the Securities, Respondent was responsible for conducting due diligence on the loans in the collateral pools to ensure that the Offering Materials were complete and accurate in all material respects.

C.  The Structure of Respondent’s Residential
Mortgage Securitization Business
    
11. Respondent’s residential mortgage securitization business was primarily handled by personnel within three RBSS departments: the Trading Desk, Asset-Backed Finance, and the Credit Department.
12. The Trading Desk was responsible for bidding on and purchasing whole loan pools from originating lenders.  The loans in the whole loan pools were ultimately used by Asset-Backed Finance to populate the collateral pools backing RBSS’ proprietary Securities.
13. Asset-Backed Finance participated in and/or coordinated the structuring of the RMBS deals and their component Securities, the preparation of term sheets, work with the rating agencies to obtain ratings for the Securities, and the drafting and reviewing of the Offering Materials and marketing materials used to sell the Securities to prospective investors.
14. The Credit Department was responsible for coordinating due diligence reviews on the mortgage loans that served as the collateral for the Securities to ensure that the statements made in the Offering Materials concerning the loans in the collateral pools were truthful and complete in all material respects.
15. Respondent is a wholly owned subsidiary of RBS Holdings USA, Inc., formerly known as Greenwich Capital Holdings, Inc.  At all times pertinent hereto, Respondent’s supervisory system was governed by the Greenwich Capital Holdings, Inc. Supervisory Manual (the “Supervisory Manual”).  Respondent’s Supervisory Manual included “[w]ritten policies and procedures to supervise the various businesses in which the Firm engages.”
16. During the Relevant Period, the activities of the Trading Desk and Asset-Backed Finance were governed by the Asset-Backed Finance, Sales & Trading Groups Policies and Procedures Manual (the “ABF Manual”), and the activities of the Credit Department were governed by the RBS Greenwich Capital Credit Procedures Manual and the Credit Policy Manual (collectively, the “Credit Manual”).
   
D.  The Respondent’s Loan Level Due Diligence Process
  
17. According to the Credit Manual, Respondent’s loan level due diligence process was to consist of two parts:  (1) credit and compliance review and (2) valuation review.
18. For the credit and compliance review, the Credit Department was supposed to determine whether the mortgage loans were originated in accordance with (a) the originators’ loan underwriting guidelines; and (b) federal, state, and local laws.  For the valuation review, the Credit Department was supposed to test the reasonableness of the value represented in the origination appraisals for the real properties that served as collateral for the mortgage loans.
19. 
This valuation review was critical because many of the measures of credit quality, such as the loan-to-value (“LTV”) ratio, depended on a reasonable valuation of the property.
20. For credit and compliance reviews, the Respondent contracted with third party due diligence vendors.  Respondent typically provided the vendors with a sample of loans drawn from the larger loan pools to review.  The samples were primarily selected through semi-random sampling and adverse sampling.  For semi-random sampling, Respondent divided the loan pool into groups of larger balance and smaller balance loans and then took a random sample from each group.
21. The intended purpose of the semi-random sample was to review a statistically significant number of loans.  Such review would thereby permit Respondent to extrapolate the due diligence results to the rest of the loan pool.
22. By contrast, the purpose of adverse sampling was to review particular loans that appeared to present higher risk of loss.  These loans included, without limitation, high LTV, low FICO score, first-time home buyer, states with predatory lending or high-cost statutes, high rating agency risk grades, loans seasoned by several months, and high principal balance loans.
23. Once the sample loans were identified, the due diligence vendor would then review the loan files for compliance with the originators’ loan underwriting guidelines, criteria specified by Respondent (the “Overlay”), and applicable law.  Originators’ loan underwriting guidelines generally provided that a loan underwriter must determine that the loan either (a) complied with all explicit requirements, or (b) demonstrated other indicia of credit-worthiness (“Compensating Factors”) sufficient to excuse the failure to comply with all explicit requirements.  The due diligence vendor would then assign each loan a grade based on its review.  These grades typically included both a “credit grade” and a “compliance grade.”
24. An Event 1 grade meant that the vendor determined that the loan complied with the explicit requirements of the originator’s underwriting guidelines, the Overlay, and applicable law.
25. An Event 2 grade generally meant that although the loan did not comply with the explicit requirements of the originator’s loan underwriting guidelines, the vendor identified   Compensating Factors that it determined justified an exception to those guidelines.  These Compensating Factors could include, without limitation, low LTV ratios, low debt to income (“DTI”) ratios, stable employment, good credit history, or significant borrower cash reserves.
26. An Event 3 grade meant that the vendor concluded that the loan did not comply with the explicit requirements of the originator’s underwriting guidelines, the Overlay, or applicable law, that there were insufficient Compensating Factors in the loan file to justify an exception, or that the loan file was missing a key piece of documentation.
27. Despite the vendors’ independent assessments that certain loans in the samples should be graded as Event 3s, there were instances where the Credit Department, often without any documented credit justification, instructed the vendor to change its grade to Event 2.  At least one vendor re-graded these waived loans as Event 2Ws.
28. Respondent’s valuation review procedure varied between vendors and over time.  By 2007, typical valuation reviews involved vendor-run automated valuation models (“AVMs”) to estimate the value of properties securing the loans in the pools.  Once the vendor determined an AVM value, it would compare that value to the originator’s reported appraised value.  If the deviation in value exceeded Respondent’s tolerance of 15% or more, the vendor then generally ordered a broker price opinion (“BPO”) on the property.  A BPO involved hiring a real estate broker to conduct a drive-by appraisal of the property and make an independent assessment of the property’s value.  If the BPO confirmed that the value deviation exceeded Respondent’s tolerance, the vendor was to grade the loan a valuation Event 3.
  
  
E.  The Securities Offering Materials
 
29. Numerous representations in the Offering Materials described the scope of Respondent’s due diligence review and the quality and character of the loans in the collateral pools supporting the Securities.
30. Among the representations in the Offering Materials were, in varying forms, the following: (a) statements that all mortgage loans were subject to due diligence, (b) that portfolios received a thorough credit and compliance review with loan level testing, (c) that the loans in the collateral pools were originated generally in accordance with the originator’s underwriting guidelines and applicable law; (d) that the origination practices of the originator were in all respects proper, prudent, and customary in the industry; (e) that the originators were experienced in originating loans in accordance with guidelines and had quality control procedures in place to exclude loans that did not comply with those guidelines; and (f) that the depositor would not include any loan in a trust if anything came to its attention that would cause it to believe that the representations and warranties of the related seller regarding that loan were not accurate and complete in all material respects as of the deal closing date.
  
  
F. Respondent Failed to Implement a Supervisory System
for its Loan Level Due Diligence Process that was
Reasonably Designed to Achieve Compliance with
Applicable Securities Laws and Regulations
  
31. Section 36b-31-6f of the Regulations required Respondent to establish, enforce, and maintain a system for supervising its activities and operations that was reasonably designed to achieve compliance with applicable securities laws and regulations.  Respondent’s loan level due diligence process should have been governed by, among other things, the Credit Manual and the ABF Manual.
32. According to Respondent’s Credit Manual, “[t]he main goal of due diligence is to ensure that the underlying assets conform to the standards disclosed in the risk disclosure statement.”  Similarly, the ABF Manual provided that “the principal focus of a due diligence review . . . is to confirm that the offering document is complete and accurate in all material respects.” (emphasis added).
33. Respondent’s Credit Manual and ABF Manual also stated that one of the goals of re-underwriting individual loan files was: “(a) to determine that the product conforms to the underwriting guidelines and [conforms to] the representations made or to be made with respect to the characteristics of the assets and how they were originated . . . ”  (emphasis added).
34. Despite these mandates, in practice, there was an inadequate nexus between the loan level due diligence performed by Respondent’s Credit Department and the material statements made to investors in the Offering Materials concerning the quality of the loans in the collateral pools.  Indeed, although the Credit Department was responsible for managing the loan level due diligence reviews and reporting the results, the Credit Department was not aware of what statements were made in the Offering Materials concerning the loans in the collateral pools and was not consulted as to whether the results of their diligence reviews could support such statements.
35. Moreover, even if there had been an adequate nexus between the loan level due diligence performed by Respondent’s Credit Department and the statements in the Offering Materials, the due diligence that was done was, at times, inadequate in several material respects.  These inadequacies undermined Respondent’s ability to use the diligence results to ensure the accuracy of the statements in the Offering Materials concerning the quality of the loans in the collateral pools.
36. First, although the statements in the Offering Materials concerned what the originator did when underwriting the loans in the collateral pools, including identifying applicable Compensating Factors, diligence vendors generally conducted their own underwriting review rather than identifying what factors the originators actually relied upon in making their underwriting decisions at the time the loan was originated.
37. Second, for proprietary RMBS deals, Respondent did not generally conduct and report on its loan level due diligence by individual securitization.  Instead, Respondent conducted loan level due diligence on one or more whole loan pools as it was purchasing those loan pools from originators.  After purchase, the whole loan pools were at times combined with other whole loan pools to form collateral pools backing particular securitizations or whole loan pools were divided up and placed into separate securitizations.  In these instances, Respondent’s loan level due diligence procedures did not address the risk that sampling results may not be representative of the securitizations.
38. Third, although the Credit Manual stated that the semi-random sample size should consist of either 10% of the loans in the pool or a statistically significant number based on an established formula, in practice, the Credit Department at times did not select samples that were statistically significant, and there were numerous RMBS deals where Respondent reviewed less than 10% of the loan pool.  Further, although the Credit Manual stated that “when significant material exceptions are found (typically greater than 20%), the sample size should be expanded and may consist of additional random selections and/or discretionary samples focusing on the issues raised by the original random sample,” there were one or more instances where the final diligence reports revealed unresolved material exception rates in excess of 20%, but the sample size was not expanded.
39. Fourth, Respondent’s Trading Desk at times entered into bid stipulations with originators that were not disclosed to investors and which undermined the Credit Department’s ability to conduct adequate loan level due diligence.
40. Fifth, Respondent’s increasing reliance in 2007 upon adverse sampling which, by definition, was not representative, undermined the Credit Department’s ability to conduct adequate loan level due diligence.
41. Sixth, although valuation diligence was called for by the Credit Manual as part of every loan level due diligence, there were some RMBS deals where Respondent did not conduct valuation due diligence, which undermined the Credit Department’s ability to conduct adequate loan level due diligence.
42. Because of the deficiencies described in Paragraphs 36 through 41, Respondent failed to implement a supervisory system for its loan level due diligence process that was reasonably designed to achieve compliance with applicable securities laws and regulations and, for that reason, violated Section 36b-31-6f(b) of the Regulations.
  
  
G. Respondent’s Supervisory Failures Contributed to the
Inclusion of Material Misstatements and Omissions in the
Offering Materials for One or More RMBS Deals
    
43. As the above allegations demonstrate, Respondent’s due diligence process was inadequate in material ways.  These supervisory failures undermined Respondent's ability to use the diligence results to ensure the accuracy of the statements in the Offering Materials concerning the quality of the loans in the collateral pools.  Further, these supervisory failures contributed to the inclusion of material misstatements and omissions in the Offering Materials for one or more RMBS deals.
44. As detailed above, Respondent made numerous material statements to investors in the Offering Materials, in varying forms, attesting to the quality of the loans in the collateral pools supporting the RMBS deals.  In particular, Respondent represented that the loans were originated generally in accordance with the originator’s underwriting guidelines and applicable law.  On one or more occasions, these representations were false and/or misleading because Respondent’s loan level due diligence showed that a portion of the loans deviated so much from the underwriting guidelines that they should have been excluded.
45. Specifically, Respondent found, through its loan level due diligence reviews, that some of its diligence samples contained large numbers of unresolved material exceptions.  In the opinion of Respondent’s due diligence vendors, many of these mortgage loans did not comply with loan underwriting guidelines or applicable law and were not exceptions justified by sufficient Compensating Factors.
46. Rather than rejecting these loan pools, expanding its reviews to ensure that all unresolved material exceptions were identified and excluded, or revising the Offering Materials to accurately describe the likely presence of such loans, in some instances Respondent overrode its vendors’ determinations without any documented justification and accepted these loans.  Further, although Respondent should have known that high rates of unresolved material exceptions in the samples implied that there were likely comparable rates of these loans in the larger loan pools, Respondent still purchased and securitized these unreviewed loans and falsely represented in the Offering Materials for certain RMBS deals that the loans were originated generally in accordance with the originator’s underwriting guidelines and applicable law.
47. Moreover, although Respondent represented in the Offering Materials for some deals that the depositor would not include any loan if anything came to its attention that caused it to believe that there had been a breach of any originator representation or warranty, there were instances where Respondent allowed the depositor to include loans that it should have known were unresolved material exceptions.

V.  THE COMMISSIONER’S ALLEGED VIOLATIONS OF LAW

1.
The Commissioner alleges that Respondent violated Section 36b-31-6f of the Regulations by failing to establish, enforce and maintain a system for supervising the activities of its agents and Connecticut office operations that was reasonably designed to achieve compliance with applicable securities laws and regulations.  Among other things, Respondent failed to follow its own internal procedures, by:

a.    Failing to ensure at all times that an adequate nexus existed between the loan level due diligence performed by the Credit Department and the statements in the Offering Materials concerning the quality of the loans in the collateral pools;
 
b.   Failing to implement loan level due diligence procedures reasonably designed to identify what Compensating Factors the originating lenders'’ actually relied upon in making their decisions to grant exceptions to the underwriting guidelines;
   
c.    Failing to implement loan level due diligence procedures reasonably designed to ensure that the results of the semi-random sampling on whole loan pools was representative of the loans actually securitized;
   
d.    Failing to implement diligence sampling procedures reasonably designed to ensure that semi-random samples were statistically significant within prescribed specifications;
   
e.    Failing to implement loan level due diligence procedures reasonably designed to ensure that samples were expanded once significant rates of unresolved material exceptions were identified;
    
f.    Allowing the Trading Desk at times to enter into bid stipulations with originators that were not disclosed to investors or adequately contemplated by procedures and which undermined the Credit Department’s ability to conduct adequate loan level due diligence;
 
g.    Increasing its reliance on adverse sampling with inadequate safeguards to ensure that the semi-random sample continued to provide the Credit Department with a representative assessment to ensure that the statements in the Offering Materials were true and complete; and
   
h.    Failing to conduct a separate valuation review for one or more RMBS deals.
2.
The Commissioner alleges that Respondent violated Section 36b-4(b) of the Act and engaged in conduct supporting proceedings under Section 36b-15(a)(2)(H) of the Act by engaging in dishonest or unethical business practices in the securities business as described in Section 36b-31-15a(a)(14) of the Regulations, by, among other things, engaging in the conduct detailed above in paragraphs 1(a)-(h).
3. The Commissioner alleges that, in connection with the offer, sale or purchase of securities for one or more RMBS deals, Respondent violated Section 36b-4(a)(2) of the Act by making untrue statements of a material fact and by omitting to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.

WHEREAS, the Commissioner would have the authority to impose sanctions against Respondent after granting Respondent an opportunity for a hearing;

AND WHEREAS, Respondent, while waiving its rights to a hearing, acknowledges the possible consequences of an administrative hearing and voluntarily agrees to consent to the entry of the sanctions described below.

    
VI. CONSENT TO ENTRY OF SANCTIONS

WHEREAS, Respondent, through its execution of this Consent Order, consents to the Commissioner’s entry of an order imposing on it the following sanctions:

1.
Respondent, its successors in interest and assigns shall cease and desist from violating Sections 36b-4(a)(2) and 36b-4(b) of the Act and Sections 36b-31-6f of the Regulations and engaging in dishonest or unethical practices in the securities business within the meaning of Section 36b-31-15a(a)(14) of the Regulations, and shall comply with the Act, its regulations and any order under the Act;
2.
No later than five days after the date this Consent Order is entered by the Commissioner, Respondent shall remit to the Department of Banking, by electronic funds transfer or wire transfer payable to “Treasurer, State of Connecticut”, the aggregate sum of One Hundred Twenty Million Dollars ($120,000,000). Such payment shall be used as follows: (1) Two Hundred Fifty Thousand Dollars ($250,000) shall be allocated to the Department of Banking for the purpose of funding and covering the costs associated with such consumer, industry and staff financial education, training and financial literacy program(s) as the Commissioner in his discretion determines are necessary to promote the public welfare; and (2) the remainder, One Hundred Nineteen Million Seven Hundred Fifty Thousand Dollars ($119,750,000), to the State of Connecticut General Fund;
3.
Respondent, for a ten-year period commencing on the date of this Consent Order, shall certify on an annual basis its compliance with the conditions of the Supervisory Plan approved by the National Adjudicatory Council of the Financial Industry Regulatory Authority (“FINRA”) on June 17, 2016 and, not later than 30 days after providing any materials to FINRA pursuant to the Supervisory Plan, provide the Division with copies of any such materials.  Pursuant to the Supervisory Plan, Respondent has agreed that:

a.     Respondent is no longer engaged in the business of securitizing newly originated residential mortgage loans (i.e. those originated fewer than 180 days from the date of purchase) and issuing the resulting RMBS.  Should Respondent seek to reengage in this line of business, it will file an application under NASD Rule 1017 and obtain FINRA’s approval to do so.
 
b.    Should Respondent seek to resume the business of securitizing newly originated residential mortgage loans and issuing the resulting RMBS, it will submit for FINRA’s approval, as part of its application under NASD Rule 1017, amended policies and procedures relating to its due diligence and disclosure practices associated with securitizing newly originated residential mortgage loans and issuing the resulting RMBS. 
4.
In addition, should Respondent seek to reenter the business of issuing or underwriting any publicly offered asset-backed securities (“ABS”) more generally during the same ten-year period, Respondent shall notify the Division of its intent to do so and submit to the Division all policies and procedures relating to its due diligence and disclosure practices associated with issuing or underwriting ABS.  For the avoidance of confusion, nothing in this Paragraph applies to (a) Respondent’s sales of ABS for which it did not serve as an issuer or underwriter, (b) Respondent’s sales and trading of ABS in the secondary market, (c) Respondent’s participation as an underwriter or placement agent in an ABS offering where asset-level due diligence is not performed by Respondent, and/or (d) syndicated loan transactions or secured lending (including the origination of ABS purchased by Respondent or its affiliates for this purpose without any public offering).

VII. CONSENT ORDER

NOW THEREFORE, the Commissioner enters the following:

1. The Sanctions set forth above be and are hereby entered;
2. Entry of this Consent Order by the Commissioner is without prejudice to the right of the Commissioner to take enforcement action against Respondent based upon a violation of this Consent Order or the matters underlying its entry if the Commissioner determines that compliance with the terms herein is not being observed;
3. This Consent Order concludes the investigation by the Commissioner with respect to all RMBS issued or underwritten by Respondent during the Relevant Period and any other action that the Commissioner could commence under the Act and its Regulations against Respondent or any of its affiliates as such action relates to the activities that were the subject of such investigation;
4. Respondent shall not take any action or make or permit to be made any public statement, including in regulatory filings, any proceeding in any forum or otherwise, denying, directly or indirectly, any allegation referenced in this Consent Order or create the impression that this Consent Order is without factual basis;
5. Except as specifically provided herein, Respondent shall not take any position in any proceeding brought by or on behalf of the Commissioner, or to which the Commissioner is a party, that is inconsistent with any part of this Consent Order. Nothing in this provision or in Paragraph 4, above, affects Respondent’s (i) testimonial obligations; or (ii) right to take any legal or factual position that may contradict an allegation in this Consent Order in litigation or other legal proceedings in which the Commissioner is not a party;
6. This Consent Order is not intended to subject Respondent or any of its affiliates or current or former employees to any disqualifications contained in the federal securities laws or the Commodity Exchange Act, the rules and regulations thereunder (including, without limitation, Regulation A and Rules 505 and 506(d) under the Securities Act of 1933), the rules and regulations of any self-regulatory organizations, or various states’ securities laws, including any disqualifications from relying upon registration exemptions or safe harbor provisions.  In addition, this Consent Order is not intended to form the basis for any such disqualifications, and the findings and allegations herein are not the type described in Section 15(b)(4)(H)(ii) of the Securities Exchange Act of 1934.  This Consent Order is not a final order of any court and contains no findings of the type described in Rule 803(8) of the Federal Rules of Evidence;
7. This Consent Order shall not disqualify Respondent or any of its affiliates or current or former employees from any business that they otherwise are qualified, licensed, or permitted to perform under the laws or regulations of Connecticut and any disqualifications from relying upon Connecticut’s registration exemptions or safe harbor provisions that might be deemed to arise from this Consent Order are hereby waived; and
8. This Consent Order shall become final when entered.


 
So ordered at Hartford, Connecticut      ____/s/_____________
this 30th day of September 2016.      Jorge L. Perez
    Banking Commissioner 


CONSENT TO ENTRY OF ORDER

I, James M. Esposito, Managing Director and General Counsel, state on behalf of RBS Securities Inc., that I have read the foregoing Consent Order; that I know and fully understand its contents; that I am authorized to execute this Consent Order on behalf of RBS Securities Inc.; that RBS Securities Inc. agrees freely and without threat or coercion of any kind to comply with the terms and conditions stated herein; and that RBS Securities Inc. consents to the entry of this Consent Order.     

 
     RBS Securities Inc.
  
           
By: _____ /s/_________________________
James M. Esposito
  Managing Director and General Counsel

 
State of:  Connecticut
 

County of:  Fairfield
 

On this the 29th day of Sept. 2016, before me, the undersigned officer, personally appeared James M. Esposito, who acknowledged himself to be the Managing Director and General Counsel of RBS Securities Inc., and that he, as such Managing Director and General Counsel, being authorized so to do, executed the foregoing instrument for the purposes therein contained, by signing the name of the corporation by himself as Managing Director and General Counsel.
 
In witness whereof I hereunto set my hand.


____/s/_____________________________
Notary Public
Date Commission Expires:  Aug. 31, 2021
   
  

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