Ex-Nomura Traders Charged With Fraud Face November Trial

Updated on
  • Jury selection set for Nov. 10 on charges of bilking investors
  • U.S. Justice Department said to be working on 10 such cases

Three former Nomura Holdings Inc. traders are set to go to trial in November on charges that they defrauded investors by inflating the prices of mortgage-backed securities in the wake of the U.S. financial crisis, even as prosecutors wait to find out if a similar case will be thrown out on appeal.

Ross Shapiro, 41, Michael Gramins, 33, and Tyler Peters, 32, pleaded not guilty Thursday in federal court in Hartford, Connecticut. The three men, accused of illegally profiting from selling bonds at higher prices than they bought them, were released on $1 million bail each and ordered to surrender their passports pending a trial scheduled to begin Nov. 10. They face as long as 20 years in prison if convicted.

Authorities are awaiting the decision of a federal appeals court in Manhattan on whether to reverse the conviction of former Jefferies & Co. trader Jesse Litvak. He was found guilty last year of similar conduct in the trading of mortgage-backed securities and sentenced to two years in prison.

“I think it is pretty outrageous for the government to have proceeded in this case given that their legal theory is being scrutinized by the Court of Appeals at this very moment in another case,” Marc Mukasey, an attorney representing Gramins, said after the arraignment. “Michael Gramins is innocent and we intend to take this case to trial.”

Deceptive Sales

The case is the latest to emerge from a U.S. crackdown on deceptive sales tactics in the market for complex bonds tied to mortgages and corporate loans, which aren’t traded on transparent exchanges, so investors often have to depend on brokers to provide valuations.

The Justice Department and the U.S. Securities and Exchange Commission have been working on as many as 10 cases involving similar interactions, two people familiar with the matter told Bloomberg News last month.

The three men -- who supervised the residential mortgage-backed securities desk at a unit in New York -- increased the spread on their trades and generated about $7 million in additional revenue by lying about how much they had paid for debt, according to the SEC.

Litvak, the first person convicted of fraud tied to a U.S. program set up to stimulate trading in mortgage-backed securities after the financial crisis, has argued that his case would make crimes out of statements made in the course of ordinary negotiations. He said his lies didn’t matter to his customers because they paid fair prices.

Litvak Ruling

A ruling in Litvak’s case may come at any time, and a decision in his favor would change at least one pending case brought by the U.S. against a former trader. Ex-Royal Bank of Scotland Plc trader Matthew Katke pleaded guilty in March to taking part in a similar conspiracy, and his agreement allows him to withdraw his plea if Litvak wins his appeal.

The SEC also alleged that the traders made up fake sellers to hide the fact the bonds were actually held by Nomura and used the deception to mislead clients about the prices they were demanding.

The three men were placed on leave from the company in November, a person familiar with the matter said at the time. Regulatory records show that Gramins and Peters were terminated in May, while Shapiro is still listed as a firm employee by the Financial Industry Regulatory Authority.

Guy Petrillo, an attorney for Shapiro, and Brett Jaffe, a lawyer representing Peters, declined to comment on the case after the arraignments.

The case is U.S. v. Shapiro, 3:15-cr-00155, U.S. District Court, District of Connecticut (New Haven).

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