WASHINGTON - A federal jury in Arkansas has convicted the head municipal trader of the now-defunct Little Rock bond firm Swink & Co. of creating false records about the sale of municipal bonds.
The U.S. attorney for the Eastern District of Arkansas had alleged that Jimmy Dale Swink Jr. pretended to sell a municipal issue to beef up net capital at a time when the firm was experiencing financial difficulties.
Swink is scheduled to be sentenced Feb. 26, 1993, on the false records charge and a second conviction by the Arkansas jury of per-jury in testimony related to government securities sales.
Samuel Perroni, attorney for Swink, and a partner with the Perroni law firm in Little Rock, said, "We were very disappointed with the verdict. From this point we are going to take it one step at a time. First step is sentencing, and after that we will make our decisions concerning an appeal."
Swink's father, Jimmy Swink Sr., is scheduled to go to trial March 22, 1993, on 16 counts of false record keeping, violations of Securities and Exchange Commission net capital rules, and criminal contempt of a 1985 SEC injunction ordering him to maintain minimum net capital at the firm. The older Swink was the firm's owner.
The SEC requires firms to maintain sufficient levels of capital from one month to the next as a margin of safety. A firm's net capital is calculated using a complex set of formulas that call for deductions, or "haircuts," for riskier bonds that firms hold in their accounts.
The senior Swink is also charged with removing more than $600,000 from the firm when Swink & Co. went into liquidation in 1989, despite the firm's debt of $2.4 million to four broker-dealers. Prosecutors allege that part of the $600,000 went to the younger Swink to start another securities firm in Little Rock called First American Securities Inc.
The older Swink was charged in federal court in Little Rock in September 1991 with a "free-riding scheme." Under the scheme, prosecutors alleged, he failed or refused to pay for over $260 million of 30-year Treasury bonds they bought from the four-broker dealers between Dec. 18 and 26, 1989. The scheme led to the four firm's losses of $2.4 million.
Swink & Co. ended 18 years of business in late 1989 after reportedly losing the $2.4 million trading government bonds when the Treasury's 30-year bond plummeted a point and a quarter amid speculation that the Federal Reserve would delay a move to ease interest rates.
The firm was expelled from the securities business by the National Association of Securities Dealers in October 1990 for allegedly "scheming to defraud" its clearing firm. The older Swink was fined $50,000 and temporarily suspended from acting as an official in the securities business for violating net capital and record keeping rules.
The older Swink's lawyer, Timothy Dudley, with Wilson, Engstrom, Corum & Dudley in Little Rock, said he did not see much chance of his client settling charges with prosecutors before the trial date.