Ex-Nomura Trader Agrees to Cooperate in Deepening Bond Probe

Updated on
  • Frank Dinucci Jr. is at least eighth to be accused of misdeeds
  • Three other former Nomura traders set for trial next month

A former Nomura Holdings Inc. trader pleaded guilty to conspiracy to commit securities fraud and agreed to cooperate with prosecutors targeting deceptive practices in the bond market, a month before three of his colleagues are set to go on trial on similar charges.

Frank Dinucci Jr., 34, who was a Nomura vice president from 2009 to 2012, is at least the eighth trader to be charged by federal authorities during the past four years on charges of lying to customers about the prices of mortgage-backed securities. He’s the third to agree to cooperate.

The first person arrested in the probe, Jesse Litvak, a former managing director at Jefferies was convicted in January on one of 10 counts of fraud for his mortgage-bond sales tactics in 2010. The jury verdict in federal court in New Haven, Connecticut, followed a successful appeal for retrial after a conviction in 2014.

Litvak, who lives in Florida, is scheduled to be sentenced April 26 and faces a maximum term of 20 years in prison, although he’s likely to get a much less severe sentence. His initial conviction resulted in a two-year prison sentence before the judgment was thrown out on appeal.

The cases are being closely watched by bond traders, especially those involved in other criminal cases. Two former Royal Bank of Scotland Group Plc employees have admitted guilt to similar charges, and their agreements allow them to withdraw their pleas if Litvak ultimately wins dismissal of the charges against him. A former Cantor Fitzgerald & Co. mortgage-bond trader, David Demos, was indicted in December on fraud charges for allegedly lying to customers.

Nomura Warned Against Lying After Jefferies Trader Charged

Dinucci entered the plea on April 4 before U.S. Magistrate Judge Donna F. Martinez in Hartford as part of an agreement with the government, according to court filings. Three other former Nomura traders who worked with Dinucci, Ross Shapiro, Michael Gramins and Tyler Peters, are set to face trial in Hartford, Connecticut, in May.

Lesser Penalty

Dinucci posted a $250,000 bond and his application for release was approved by the judge. He’s scheduled to be sentenced on Aug. 17. While the charge carries a maximum sentence of five years in prison and a $250,000 fine, prosecutors said they will recommend a lesser penalty based on his cooperation.

Dinucci, who primarily traded bonds made up of subprime and adjustable-rate mortgage loans, said in a court filing that he “worked with others to misstate to customers the prices at which Nomura could or had purchased or sold bonds and whether the bonds Nomura was selling were in Nomura’s inventory.”

As an example, Dinucci said in March 2012 he took part in a chat where a colleague told a customer that Nomura could buy bonds at 64 when the actual price was 62 -- and later told another colleague that it was important the customer didn’t find out about the cheaper price. That customer was identified in a court filing as Western Asset Management Co., a Pasadena, California-based investment manager.

Dinucci Admission

"I made this statement in order to help Nomura conceal the representation, which would ultimately help Nomura in its negotiations with the customer," Dinucci said in the filing.

Craig Rabbe and Daniel Zinman, lawyers for Dinucci, didn’t immediately respond to requests for comment. Jennifer Will, a Nomura spokeswoman, declined to comment.

Financial Industry Regulatory Authority records show that Dinucci began his career at JPMorgan Securities in November 2007 and left for Nomura in July 2009. He then joined Auriga USA LLC, where he stayed until 2015, when he went to AOC Securities LLC, a brokerage affiliated with fund manager Angel Oak Capital.

He left AOC in October 2015, when he resigned voluntarily in connection with “misstatements made in connection with trading activity at a prior firm” from about February 2010 through at least January 2012, and rejoined AOC in 2016, according to FINRA.

Dinucci violated a non-prosecution agreement he signed in June 2015, according to his plea agreement. That 2015 agreement is superseded by the new accord. Dinucci also plans to plead guilty to separate charges in New York federal court, according to the plea agreement.

Auriga and Jimmy Moock, a spokesman for Angel Oak Capital Advisors, didn’t immediately respond to requests for comment on Dinucci’s plea.

Crackdown’s Leader

Thomas Carson, a spokesman for Connecticut U.S. Attorney Deirdre Daly, declined to immediately comment beyond the court filings. The crackdown has been led by Daly, an Obama administration appointee who agreed last month to stay on under President Donald Trump. She will complete two decades of service with the Justice Department, while Attorney General Jeff Sessions asked 46 U.S. Attorneys to resign.

The three Nomura traders have asked a federal judge to order the government to provide the names and contact information of all people it alleges are their unindicted co-conspirators. Many traders, salespeople, compliance staff and supervisors have been interviewed by prosecutors during the probe and have admitted to the conduct at issue or had knowledge of it, the three contend.

Prosecutors said in response that they intend to show that traders on Nomura’s residential mortgage-backed securities desk during the time of the alleged conduct are unindicted co-conspirators and that four of them appear on its witness list for trial.

"Requiring the government to formally identify and classify others who may have participated in this conspiracy as either co-conspirator or ordinary witness would unfairly limit the government’s proof at trial," prosecutors said in a court filing Thursday. "Denying the request, however, would not create a significant risk of unfair surprise."

The case is U.S. v. Frank Dinucci Jr., 17-cr-00069, U.S. District Court, District of Connecticut (Hartford).

(Updates with employment history starting in 12th paragraph.)
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