an inducement for Kidder to purchase the first swap securities from the Askin Funds.
On February 1, Unigestion had not opened the State Street account and, therefore, had not, in the language of the IMA "placed under the management of ACM" any securities or cash. ACM, therefore, could not have traded on Unigestion's behalf on February 1, because there was were as yet no assets with which to trade. On February 4, despite the fact that Unigestion had not owned any of the first swap securities, a purchase of $ 8,634,669 worth of the high risk FN 94-33 Class S was processed for Unigestion's Kidder Account with a trade date of February 1 (the "February 1 Trade"). No trade ticket for this purported transaction with Unigestion's Kidder Account has been produced by Kidder. A Kidder Investor Account statement, in the form used for individual and institutional customers of Kidder, for the period February 1 to February 28, 1994 ("Unigestion's Kidder Account February Statement"), does not list the purchase of FN 94-33 Class S as a transaction for Unigestion's Kidder Account during February 1994, nor does it list FN 94-33 Class S as an open position of Unigestion's Kidder Account as of February 28, 1994. The trade confirmation of this transaction indicates that the date of the trade as "2/1/94".
An almost identical pair of transactions was executed with a trading date of February 2, 1994, involving another high-risk and potentially difficult to sell class of derivative instruments, derived from mortgage-backed securities issued by Federal Home Loan Mortgage Corporation ("FHLMC") and identified as FH 1695 Class RJ. On March 21, despite the fact that Unigestion did not own any of the securities which Kidder purchased in exchange for ACM's purchase of the FH 1695 Class RJ (the "Second Swap Securities") $ 6,000,000 of FH 1695 DJ was processed for Unigestion's Kidder Account with a trade date of February 2, 1994. As in the first transaction, no trade ticket was produced documenting this transaction. The February statement for Unigestion's Kidder Account does not list the purchase of FH 1695 DJ as a transaction for Unigestion's Kidder Account during February 1994, nor does it list FH 1695 DJ as an open position of Unigestion's Kidder Account as of February 28, 1994.
On February 11, 1994, Kidder sold ACM another series of FNMA securities, $ 1,000,000 of which was attributed to Unigestion's Kidder Account. As with the previous trades, no trade ticket or other account documents indicate that the transaction actually was executed for Unigestion on the trade date.
Kidder documents show a reverse repurchase/repurchase transaction ("repo") for $ 1,000,000 of FN 89 75G for Unigestion's Kidder Account on February 18, 1994. Repo transactions executed by brokers and dealers for the account of customers are subject to Exchange Act Rule 15c3-3(b)(4)(i), 17 C.F.R. § 240.15c-3(b)(4)(i), and 17 C.F.R. § 403.4. This Rule provides that a broker or dealer that retains custody of securities that are the subject of a repo transaction shall obtain a repurchase agreement in writing. No such agreement was executed by Unigestion or ACM regarding the February 18 repo transaction, which resulted in a loss of $ 122,129 by Unigestion which has not been recovered.
Twelve more transactions are detailed in the Amended Counterclaims. These subsequent transactions, like the three described above, lacked trade tickets indicating that, as of the trade date, the transaction was being executed for the account of Unigestion. They all involved highly speculative investments. Some were "repos", others were "IOs". Some involved a "swap security" scenario as described above, in which ACM, for the benefit of the cash-poor Askin Funds bought highly speculative, hard-to-sell CMO securities from Kidder in exchange for Kidder's buying securities from the Askin Funds, thereby providing needed cash to the Askin Funds. ACM then attributed hundreds of thousands of dollars of the newly purchased, high-risk CMO derivatives to Unigestion's Kidder Account. The table below sets out the key details of the transactions already described and subsequent transactions.
Total Price of
Kidder Amount Portion
Trade Date Series Transaction of Sale Attributed
Date Processed Designation Type to Askin to Unigestion
2/1/94 2/4/94 FN 94 33S Inverse IO $ 368,634,669 $ 8,634,669
2/2/94 3/21/94 FH 1695RJ Inverse IO $ 300,000,000 $ 6,000,000
2/11/94 2/16/94 FN 147PN "IOette" $ 152,495,000 $ 1,000,000
2/18/94 2/24/94 FN 92 G67S Inverse IO $ 153,500,000 $ 12,500,000
2/18/94 2/23/94 FH 1344S Inverse IO $ 257,727,840 $ 17,727,844
2/23/94 2/23/94 FN 92 26S Inverse IO $ 875,000 $ 77,000
2/24/94 2/28/94 FN 92 139SA Inverse IO $ 2,400,000 $ 120,000
2/24/94 3/21/94 FH 1695D Inverse IO $ 100,000,000 $ 7,250,000
3/4/94 3/10/94 FH 1710AK Inverse IO $ 300,000,000 $ 5,000,000
3/10/94 3/14/94 FH 1534L Inverse IO $ 220,000,000 $ 5,250,000
3/25/94 unknown n3 FH G031S Inverse IO $ 35,000,000 unknown n4
n3 The date that this transaction was processed is not known since Kidder
has not produced a trade confirmation for the transaction and it does not
appear on any account statement.
n4 Neither the Proposed Amended Complaint nor any of Kidder's submissions
indicates the portion of this transaction which was allocated to
Unigestion. Kidder's asserted claim growing out this transaction is
Unigestion Was "Swap
as of Trade Security"
Trade Date? Involved?
Date (Y/N) (Y/N)
2/1/94 No Yes
2/2/94 No Yes
2/11/94 No No
2/18/94 No Yes
2/18/94 No Yes
2/23/94 No Yes
2/24/94 No Yes
2/24/94 No Yes
3/4/94 No No
3/10/94 No Yes
3/25/94 No Yes
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