(Bloomberg) -- No one disputes that former Nomura senior trader James Im lied to his customers. The question for the jurors weighing his liability is whether anyone believed and acted on those lies.
Im’s lawyer told the jury in his closing argument Thursday that it’s standard industry practice to stretch the truth and that Nomura Holdings Inc.‘s clients, as sophisticated investors, weren’t fooled for a minute.
“They’re the wine sommeliers of the investment world,” defense attorney Matthew Ingber told the panel in federal court in Manhattan. “They know the vineyard, they know the grape, the soil, the value of the wine, how it all aged. They’re the NFL scouts who know every measurable trait associated with every player in the the draft.”
Im, who headed Nomura’s commercial-mortgage-backed securities desk from 2009 to 2014, was sued by the U.S. Securities and Exchange Commission in 2017. The SEC alleged that he had defrauded the firm’s clients, including investment advisers and other fund managers trading the securities, by misrepresenting bond price information to boost the bank’s profit and his own bonuses, which the agency said added up to $3.8 million.
Im was among the last targeted by regulators in a U.S. crackdown on dubious methods used by traders of asset-backed securities in the wake of the 2008 financial crisis.
Sophisticated Funds
In his closing, Ingber acknowledged that Im lied to clients about the prices at which his company had bought or sold bonds, the bids and offers he had made on the securities, how much the firm was being paid and who actually owned the bonds. But that had no effect on their investment decisions, he said.
“No matter how many times the government repeats the mantra that it’s all about the lies, no matter how many times the government walks you through the chats, that is not and will never be the full picture,” he argued. “He negotiated with the most sophisticated hedge funds in the word. He traded with them at a price they agreed to within a range they calculated as fair, as part of a transaction they could walk away from at any time.”
Read More: Top Nomura Trader Admits Lying to Clients But Says Everyone Did
The SEC sued both Im and another trader, Kee Chan, who ran the CMBS desk with him from August 2009 to June 2012. It claimed Im made up entire conversations with nonexistent third parties in “colorful but entirely fictitious exchanges,” in one case negotiating with a third-party seller at higher prices when Nomura had already bought the bonds involved at a lower price.
Nomura agreed to repay customers $25 million in July 2019 to resolve claims that it failed to supervise traders who made false statements while negotiating sales of mortgage securities. To resolve the allegations, without admitting or denying the conduct, Chan in 2017 agreed to pay more than $200,000 in penalties and to be barred from the industry.
‘Car Salesman’
“It’s how he cut the tension,” Ingber told the jury about Im on Thursday. “It’s the car salesman saying, ‘Sorry, but my boss says this is the best I can do.’ People may debate whether that practice is good or bad, one they liked or they didn’t like, but it didn’t violate securities law. This was not a departure from the standard of reasonable care in the CMBS industry.”
Richard Hong, a lawyer for the SEC, said in his own closing argument that Im lied to customers to make money and wanted to put Nomura’s CMBS desk on the level of larger players like Goldman Sachs Group Inc. and Morgan Stanley. But Nomura “is not in a used-car business or trading rugs,” he said.
“It’s in a heavily regulated industry, regulated by the likes of the SEC, Finra and other regulatory organizations,” he said. “Which is why Nomura repeatedly told its traders, including Mr. Im, that it was not OK to lie to Nomura’s customers.”
Read More: Ex-Nomura Traders on Trial as Part of U.S. Crackdown -- Scorecard
More than 20 traders were dismissed from their jobs or placed on leave during the U.S. investigation, and at least eight, including four from Nomura, were criminally charged, although prosecutors had difficulty getting convictions to stick. Many firms changed their policies after the probe, barring traders from lying to clients and monitoring their communications more closely.
Like the others accused in the crackdown, Im argues that his lies weren’t material to the firm’s clients, or important enough to influence their investments. He took the stand in his own defense, saying that his customers also lied to him about prices and that the misrepresentations didn’t influence the value of the collateral underlying the bonds.
The case is Securities and Exchange Commission v. Im, 17-cv-3613, U.S. District Court, Southern District of New York (Manhattan).
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