Three former Nomura Holdings, Inc. (ADR) (NYSE:NMR) (TYO:8604) RMBS traders have been indicted in a Connecticut federal court for swindling millions of dollars from customers while making millions themselves.
The 10-count indictment, returned on September 3 and unsealed on Tuesday, alleges that Ross Shapiro, Michael Gramins and Tyler Peters committed conspiracy and fraud offenses while supervising the Residential Mortgage Backed Securities Desk at Nomura Securities International in New York.
“The indictment alleges that, for several years, these three defendants handsomely profited by repeatedly lying to Nomura’s customers in violation of federal law,” said U.S. Attorney Deirdre M. Daly in a statement. “ The victims of this alleged conspiracy include numerous funds, retirement plan providers and taxpayer-provided bailout funds that helped our nation to recover from the 2008 financial crisis. Our investigation into corrupt practices in the RMBS and other financial markets continues.”
Shapiro was the managing director who oversaw all of Nomura’s trading in RMBS, Gramins was the executive director at the RMBS desk and oversaw trading of bonds comprised of sub-prime and option ARM loans, and Peters was the senior-most vice president of the RMBS desk and focused on Nomura’s trading of bonds composed of prime and alt-A loans.
Nomura RMBS Traders accused of manipulating the bond market
The three are accused of orchestrating a scheme of fraud and deceit to manipulate the bond market in their own favor, resulting in losses that were passed on to investors. They allegedly inflated purchase prices at which Nomura could buy a RMBS bond to induce customers to pay higher prices and deflated prices at which Nomura could sell.
They are also said to have trained their subordinates to lie to customers. In one instance, one of trader told a salesperson that he had “lied” about a bond price and “marked up by 2 pts,” to which the salesperson responded “haha sick … well played.”
“When investment professionals put profits before prudence and the law, it creates a dangerous environment for investors and threatens the integrity of our financial markets,” said Steven Perez, Special Agent in Charge of the Federal Housing Finance Agency Office of Inspector General, in a statement.
The SEC also announced on Tuesday related civil fraud charges against Shapiro, Gramins and Peters.
According to the commission’s complaint, the three generated at least $5 million in additional revenue from Nomura, and the lies and omissions by the subordinates they trained and coached generated at least $2 million more. The SEC also alleges the three went as far as to invent phantom third-party sellers and fictional offers when Nomura already owned the bonds traders were pretending to obtain for potential buyers.
During the years the misconduct occurred, Nomura paid total compensation of $13.3 million to Shapiro, $5.8 million to Gramins and $2.9 million to Peters.
The SEC has entered into deferred prosecution agreements with three other individuals who have “extensively cooperated” with the investigation.
The Financial Times points out that Nomura lost a lawsuit filed by the Federal Housing Agency in May accusing it of misleading investors in mortgage-backed securities. The agency sued 19 financial institutions in 2011, 17 of which agreed to billions of dollars to settle allegations they mis-sold securities to Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC).
This story originally appeared in ValueWalk.
Photo: Jeff Turner