Even Lied-to Bond Manager Says He Did Same From Time to Time

  • U.S. witness against ex-Nomura trio employed similar tactics
  • Former Putnam portfolio manager Harrison resumes testimony

An investment-fund manager who claims he was shortchanged by traders lying about mortgage-bond prices admitted he used the same tactic under certain circumstances.

"I may make the choice of lying to that person if I thought it was protecting my clients’ interest," former Putnam Investments LLC portfolio manager Zachary Harrison testified at the trial of three former Nomura Holdings Inc. bond traders.

During four days on the stand, Harrison explained how he researched securities before deciding whether to trade by plugging data such as housing prices and delinquency rates into analytical models. But under cross-examination from lawyers for the accused traders, Harrison admitted he also had lied during negotiations and engaged in trading practices that some consider unacceptable, one of which got him fired.

The Nomura trio, Ross Shapiro, Michael Gramins and Tyler Peters, are in federal court in Hartford, Connecticut, accused of lying to clients about bond prices and training their subordinates to do the same. They are among a handful of traders who have been criminally charged with deceiving customers as part of a crackdown that began with the indictment of ex-Jefferies LLC managing director Jesse Litvak in 2013.

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

Lawyers for the three have argued that their clients dealt with highly sophisticated customers, such as Harrison. While he testified as a prosecution witness, defense lawyers have argued that Harrison’s bond-trading tactics were widely similar to the accused Nomura trio and common in the bond market.

Defense attorney Marc Mukasey’s questioning brought out that Harrison was a high school valedictorian in Connecticut, a graduate of Dartmouth College and a “fairy disciplined guy” who worked out twice a day and ordered the same salad on a daily basis for two years. Harrison testified that Gramins, Mukasey’s client, always delivered the bonds he agreed to deliver, “barring mistakes or miscommunications,” at the prices that had been negotiated.

Michael Brown, an attorney for Peters, questioned Harrison about whether he ever lied and the reasons he was fired from Putnam last year.

Harrison said that while he considered lying to be inappropriate in trade negotiations "in the vast majority of instances," he said there were occasions when he was employing or considering a strategy where he wouldn’t be truthful about certain sales or purchases.

MORE: Bond Pricing Chats Are at Heart of U.S. Case

Harrison told jurors that he was fired in May 2016 because the company determined his trading practices around what he called a “core position” were improper. While Putnam had considered the practice “parking,” Harrison disputed that and said he felt his practices were acceptable.

"It’s a zone that is delicate and difficult to operate in," Harrison said.

The next prosecution witness, Aadil Abbas, a portfolio manager for Hartford Investment Management Co., the investment arm of the Hartford Financial Services Group Inc., testified Thursday that he too was a victim of bond lies.

Abbas told jurors about one trade in May 2012 where he boosted his offer based on statements made by a Nomura trader that the government said was a lie. He said he wouldn’t have paid as much if he had known the information was bogus.

But under questioning from defense attorney Josh Klein, a lawyer for Shapiro, he admitted that he also relied on his own analytics and models before trading and regularly entered into transactions without knowing exactly what the dealer had paid for a security.

“The fact that you don’t have that information doesn’t prevent you from trading?” Klein asked.

“Correct,” Abbas responded.

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