Nomura Warned Against Lying After Jefferies Trader Chargedby and
Charges against ex-Jefferies trader spurred training session
At least one allegedly fraudulent trade done after session
Nomura Holdings Inc. held a training session after a former Jefferies & Co. managing director was indicted for fraud and encouraged its traders not to lie -- but that didn’t stop the fibbing to customers about bond prices, according to U.S. prosecutors.
Three former Nomura traders are accused of increasing the spread on their trades and generating about $7 million in additional revenue by lying about how much they paid for debt. Ross Shapiro, Michael Gramins and Tyler Peters pleaded not guilty and are scheduled to go to trial in October.
The session at the Japanese bank was called to discuss the indictment of ex-Jefferies trader Jesse Litvak, who was arrested in January 2013 for misleading customers on the prices of mortgage bonds, Assistant U.S. Attorney Liam Brennan said Wednesday at a hearing in Hartford, Connecticut.
Two of the indicted employees were present at the session, where attendees were given a handout telling them "do not lie." Shapiro afterwards held an "all hands on deck" meeting of traders on the residential mortgage-backed securities desk and told them to heed the warning, Brennan said. Yet despite that, one of the fraudulent trades took place after that meeting, Brennan said.
Nomura spokesman Jonathan Hodgkinson didn’t immediately respond to a telephone message and an e-mail seeking a response to Brennan’s comments.
The Nomura case is the latest to emerge from a U.S. crackdown on deceptive practices in the bond market that is continuing even after an appeals court threw out Litvak’s conviction late last year and ordered a new trial. A former Royal Bank of Scotland Group Plc trader pleaded guilty to lying to customers in December, shortly after the appeals court decision, becoming the bank’s second employee to admit to fraud charges in the probe.
Dozens of mortgage-bond traders have been suspended, put on leave or fired as the U.S. probes tactics used in the market for complex debt. A handful of traders were indicted. The crackdown has shed a light on the opaque world of bond trading and raised questions about what kind of sales tactics are appropriate.
Lawyers for the three men have asked U.S. Judge Robert Chatigny to dismiss allegations that they committed wire fraud, saying the indictment doesn’t show they meant to harm the counterparties in the trades.
"I don’t see how the alleged misrepresentations can be construed as an intent to harm," said Joshua Klein, an attorney for Shapiro.
Peters has asked to be tried separately. His attorney, Brett Jaffe, argued that his client conducted the trades in good faith and without criminal intent because Shapiro, his supervisor, believed he wasn’t doing anything wrong. He taught Peters that the way he was conducting business was legal, the lawyer said.
Prosecutors argued that holding two trials would inconvenience both the government and witnesses. The judge declined to rule immediately on the requests.
The allegedly fraudulent trade that occurred after Nomura held the training session was handled by Peters, Brennan said. Jaffe told the judge his client wasn’t at the training session and didn’t attend the meeting called by Shapiro afterwards. Guy Petrillo, who also represents Shapiro, declined to comment on Brennan’s statements after the hearing.
Litvak’s retrial is scheduled for July.
The case is U.S. v. Shapiro, 3:15-cr-00155, U.S. District Court, District of Connecticut (New Haven).