The U.S. Attorney’s Office for the District of Connecticut and the Securities and Exchange Commission are charging three ex-Nomura Securities International (NMR) traders with mortgage-backed securities fraud. The SEC contends that while at Nomura, Michael Gramins, Ross Shapiro, and Tyler Peters misrepresented the bonds and offers that the firm was provided for the residential mortgage-backed securities, along with the prices at which it bought and sold the securitizations and the spreads earned for intermediating the trades.
The three men are accused of not only lying to customers about the pricing data of the mortgage bonds but also of bilking of them of millions of dollars. The SEC claims that they coached, trained, and instructed junior Nomura traders to also commit this fraud. Their wrongdoing purportedly helped Nomura make millions of dollars in illicit revenue—$5 million from their alleged misconduct and $42 million from the omissions and lies made by those whom they trained.
Meantime, prosecutors have announced criminal charges against the three men. According to the indictment, they oversaw Nomura’s RMBS Desk in New York. Shapiro was a managing director, Gramins was the desk’s executive director, and Peters was a Senior VP whose role was concentrated on bond trading of alt-A loans and prime loans.
The men are accused of conspiracy to defraud Nomura customers by inflating the RMBS bond price that the firm had to pay in order to get customers to pay an even higher price. They also purportedly deflated the price that Nomura could sell an RMBS bond to get customers to sell at lower prices, as well as set up fake third third-party sellers and offers even when Nomura already owned the bonds, which they then pretended they were getting potential buyers.
The alleged scam allowed Peters, Gramins, and Shapiro to make their own illegal profits. The SEC said that during the years of the alleged misconduct, Nomura paid $13.3 million in compensation to Shapiro, $5.8 million to Gramins, and $2.9 million to Peters.
Alleged victims of the RMBS fraud scam included retirement plan providers, funds from different parts of the world, and the manager of a Troubled Asset Relief Program fund. The SEC said that customers depended on the price information provided by the three men because the market for the type of RMBS involved is opaque, which means accurate information about pricing is hard to come by.
Read the SEC Complaint (PDF)
SEC, U.S. Attorney charge three former Nomura RMBS traders with fraud, Housing Wire, September 8, 2015