Ex-Nomura Trader Says He Was Trained to Lie to Customers

  • Former Nomura traders accused of teaching deceitful tactics
  • Mortgage-securities dealers are charged with conspiracy, fraud

A former Nomura Holdings Inc. bond trader said he was trained to lie to customers shortly after coming to the company in order to boost the firm’s commissions.

Frank DiNucci Jr. said the tactics he learned included lying about where Nomura had bought or sold bonds and misrepresenting the price it had paid.

DiNucci was the first witness Monday at the trial of three former Nomura colleagues, Ross Shapiro, Michael Gramins and Tyler Peters, who are accused of lying to customers about the prices of mortgage-backed securities. DiNucci told jurors in a federal courtroom in Connecticut that he learned most of the deceptive practices from Shapiro and Gramins.

DiNucci said he understood that lying and deception was wrong but didn’t "put two and two together" when employing the questionable tactics.

"It was just commonplace on the desk," he said. "I didn’t think about the reality of it when I was actually doing it." DiNucci, who worked at Nomura from 2009 to 2012, pleaded guilty last month to one count of conspiracy to commit securities fraud and agreed to cooperate with the government.

DiNucci is a “desperate” witness who has lied to prosecutors and federal agents, Marc Mukasey, a lawyer representing Gramins, told jurors in opening statements.

"At this point he’s in so much trouble that he would probably get on the witness stand and testify that two plus two equals five," Mukasey said. "He would probably plead guilty to the JFK assassination if it helped him."

Boost Profits

Prosecutors told the jurors that the three defendants lied to their customers from 2009 to 2013 in order to boost profits for Nomura and trained subordinates to do the same thing.

“They would teach them that through deceit they could make more money for Nomura,” Assistant U.S. Attorney Liam Brennan, said in opening statements on Monday.

The trial of the three traders is beginning after Jesse Litvak, a former Jefferies LLC managing director, was sentenced to prison last month for lying to bond clients.

Litvak was the first to be arrested in 2013 in a crackdown on deceptive practices that led to the departure of dozens of traders and criminal charges against at least eight people, three of whom have agreed to cooperate.

Attorneys for the three Nomura traders argued, like Litvak, that their counter-parties were sophisticated market players who use their own models and research to value mortgage bonds and are skeptical about statements made during negotiations.

Lies Traders Tell: New Trial, New Worry in Mortgage-Bond Circles

Nomura’s customers got the "best available price" during the deals at issue, receiving the exact bonds they sought, said Guy Petrillo, an attorney for Shapiro.

"No one was bamboozled or snookered," Petrillo said. "All of the buying and selling was done by some of the most financially successful hedge-fund and money-management firms in the world, each managing billions of dollars."

Bond trades are similar to negotiations at an auto dealership, where neither side is taking the other’s sales tactics into account -- just the final price of the car, said Mukasey, the lawyer for Gramins. He said any misstatements Gramins made were insignificant and a "drop of water in the ocean of information" that his counterparts analyzed before deciding to enter into any trades.

“This was a market where they engaged in financial jujitsu every day and the witnesses the government calls victims were really the black belts," Mukasey said.

Scorecard: Ex-Nomura Traders on Trial as Part of U.S. Crackdown

— With assistance by Matt Scully

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