Ex-Nomura Traders' Trial May Hinge on Outcome of Litvak's Appeal

  • Deceptive sales tactics at issue in trial and appeal
  • Judge sets ex-Nomura traders' trial for 3rd Quarter of 2016

The trial of three former Nomura Holdings Inc. traders accused of inflating the prices of mortgage-backed securities may hinge on an appeal in a related case.

Prosecutors told a federal judge in Hartford, Connecticut, Wednesday that the case against the traders might have to be tossed if an appeals court overturns the conviction of Jesse Litvak, a former Jefferies & Co. trader found guilty of similar conduct.

“That would impair this prosecution,” Assistant U.S. Attorney Liam Brennan told U.S. District Judge Robert Chatigny during discussions about a date for the Nomura traders’ trial.

At issue in both cases are deceptive sales tactics in the market for complex bonds tied to mortgages and corporate loans, which aren’t traded on transparent exchanges. The three Nomura traders boosted the spread on their trades to make an extra $7 million by lying about how much they paid for the debt, according to the Securities and Exchange Commission, which sued them in a related case.

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.

Ross Shapiro, Michael Gramins and Tyler Peters, the former Nomura traders, pleaded not guilty to charges that they illegally profited from selling bonds at higher prices than they bought them.

Brennan said it would be “highly unusual” to delay one case while another is being appealed, while agreeing with the judge that “in theory” the case against the Nomura traders would have to be tossed if Litvak wins his appeal.

Guy Petrillo, an attorney representing Shapiro, said there are other issues in Litvak’s appeal, and that a decision in the case will help provide guidance on what kind of evidence can be admitted in cases of this kind.

A ruling in Litvak’s case may come at any time, and a decision in his favor would change at least one other pending case brought by the U.S. against a former trader. Ex-Royal Bank of Scotland Group 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.

Chatigny agreed with the defense lawyers on the date for the trial, and scheduled it for the third quarter of 2016. Prosecutors had pressed for a May trial.

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

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