Nomura Holdings Inc. unit will repay customers about $25 million to settle U.S. regulators’ allegations that it failed to supervise traders who made false statements in negotiating sales of mortgage securities.
The New York unit didn’t adequately monitor traders who lied to clients about the prices the firm paid for bonds and the amount of profits the traders would receive, the Securities and Exchange Commission said in a Monday statement. In some cases, the traders even misled customers about who owned the bonds, pretending that they were negotiating with a third party when, in fact, Nomura already had possession of the assets.
The former Nomura Securities International Inc. traders, who sold commercial and residential mortgage-backed securities, engaged in the illegal conduct from 2010 to 2014, according to the SEC. The RMBS traders involved included ex-managing director Ross Shapiro and senior traders Michael Gramins and Tyler Peters. Former co-heads of CMBS trading James Im and Kee Chan were also named by the SEC. All were previously sued by the regulator.
“Firms acting as dealers in opaque markets like those for CMBS and RMBS must take steps to prevent misleading communications with their customers,” Daniel Michael, head of the SEC enforcement’s complex financial instruments group, said in a statement.
The SEC has been focused on pricing in opaque markets for bonds backed by mortgages ever since the 2008 financial crisis. The regulator has uncovered a wide swath of infractions from brokers engaging in misconduct to hedge fund managers inflating their investment returns.
Nomura will pay $20.7 million to affected RMBS customers and $4.2 million to CMBS clients and an additional $1.5 million in penalties to the SEC. The amount being paid reflects Nomura’s “substantial cooperation,” the SEC said.
A Nomura spokesperson didn’t immediately respond to a request for comment.
Shapiro, the former managing director, was barred from the industry by the SEC in October 2018 with the right to reapply after two years. The agency’s civil cases against Gramins and Peters are pending. Chan has settled with the SEC, while Im is fighting the regulator’s allegations.
Shapiro, Gramins and Peters also faced criminal charges from the Justice Department. After a 2017 trial, Gramins was the only one found guilty. He is currently appealing the decision.
