Photographer: Kiyoshi Ota/Bloomberg

Novice Nomura Trader Tells Jury How Bosses Taught Him to Lie

  • Three former traders are accused of defrauding clients
  • Testimony comes as trial in Connecticut enters third week

When Caleb Chao started working on Nomura Holdings Inc.’s mortgage-bond desk after graduating from college, he got an education very different from the one offered at Cornell University.

Testifying at the trial of three former Nomura traders, Chao said Monday that he was soon taught how to mislead customers about prices and other details in order to get larger commissions.

“The purpose was to sort of make a client feel like we were working for them, but in reality we were making more money,” Chao told jurors in federal court in Hartford, Connecticut. “I just graduated from college and I had no other prior experience. I was relying on how my bosses told me how the market operated."

Chao, who worked for Nomura from 2010 to 2014, is the second former trader at the Japanese firm to take the stand for prosecutors in the trial of three ex-colleagues accused of lying to their clients. Ross Shapiro, Michael Gramins, and Tyler Peters deny wrongdoing, saying their tactics were commonplace and didn’t deceive the sophisticated parties with whom they negotiated.

“I wasn’t thinking about it in legal terms," said Chao, now a fixed-income salesman at StormHarbour Securities LLC in New York. “I thought it was OK because I continued to see it on a regular basis.”

Specific Trade

Chao, who is testifying for prosecutors in exchange for not being prosecuted, was questioned Monday about a May 2012 trade with Hartford Investment Management Co. A portfolio manager at the firm, Aadil Abbas, testified last week that he wouldn’t have paid as much for a bond if he had known the information was bogus.

While Chao said he didn’t recall the details of the specific deal with Abbas, he said he would generally look to Gramins for advice on what to tell the customer.

“In a trade like this, he would instruct me on what I should be telling a client," Chao said. "In trades where he was not being straightforward, I would need some advice on what I was telling the client."

The former Nomura traders on trial are among more than a half-dozen people who have been charged for lying to customers. The crackdown began with the arrest of former Jefferies LLC managing director Jesse Litvak in January 2013. Litvak was sentenced last month to two years in prison.

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

Prosecutors have argued that the three former traders continued to lie even after Litvak was arrested, while their attorneys contend that they changed their ways afterward. Defense lawyers failed to block prosecutors for mentioning the Litvak case.

Chao’s testimony comes after that of Frank DiNucci Jr., the trial’s first witness, who told jurors that he was taught to deceive clients shortly after coming to the company in 2009 and continued to use the tactics even after leaving in 2012. Defense attorneys have painted DiNucci as a serial liar and criminal who even stole money from his own mother.

On Monday, Chao said Gramins held a meeting soon after Litvak’s arrest in which he told traders not to lie about prices, urged them to be clearer in chats, and asked that they negotiate with customers over the phone. But Gramins continued to lie, telling a salesperson to quote an incorrect price to a client, Chao said.

On cross-examination, which began late in the day, Chao said he met with prosecutors twice before telling them that he had heard Gramins misrepresent prices even after Litvak’s arrest. Chao said he received his non-prosecution deal soon afterward.

The trial, which began May 8, is expected to last into early June.

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