Nomura Traders in Ultimate Bet Won't Testify at Fraud Trial

  • Trio stands accused of lying to customers to boost profit
  • Case is part of government crackdown in opaque markets

Three former Nomura Holdings Inc. mortgage-bond traders accused of cheating their customers called no witnesses in their defense against fraud charges, betting that prosecutors’ evidence is too weak to convict them.

Lawyers for the three traders -- Ross Shapiro, Michael Gramins, and Tyler Peters -- have said they will tell jurors that the prosecution failed to prove its case beyond a reasonable doubt and, in fact, some of government’s witnesses helped their clients. None of the defendants took the stand.

The government rested its case Tuesday in Hartford, Connecticut, after presenting eight witnesses, including former Nomura junior traders who said they were trained to lie in bond negotiations and customers who testified they had been duped. Closing arguments are expected to begin later this week, and jurors may begin deliberating by the end of the week.

The trio are among more than a half-dozen bond professionals who have been charged with misrepresenting prices to customers. The crackdown on abuses in the bond market 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

Attorneys for the ex-Nomura traders have contended that their clients were negotiating with highly sophisticated professionals who consulted their own models when deciding whether to trade and only pulled the trigger when the price was right. 

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

"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."

Defense attorneys were also able to prompt a government witness from firms who traded with the Nomura trio to admit he used similar tactics at times.

"I may make the choice of lying to that person if I thought it was protecting my clients’ interest," said Zachary Harrison, former Putnam Investments LLC portfolio manager, who testified that he was shortchanged by Nomura traders lying.

Litvak Strategy

Like Litvak, none of the three ex-Nomura traders chose to testify in their trial. But unlike Litvak, they chose not to call an expert witnesses to offer evidence on their behalf.

Besides Litvak, the federal crackdown on questionable bond market sales practices has led to charges against seven other traders and the departure of more than 20 others.

He was found guilty of 15 counts of securities fraud in 2014 before an appeals court threw out his conviction the following year and sent the case back for another trial, saying that he had been improperly blocked from calling an expert to testify in his own defense.

At his second trial, Phillip R. Burnaman II, a former portfolio manager at ING Bank, testified for Litvak that bond traders are smart professionals backed by substantial research and are skeptical about statements made about pricing during negotiations.

The defense may have concluded that Litvak’s strategy was ineffective, said David Bissinger, a Houston lawyer who represents traders and securities professionals.

“I suspect the defense team decided the ‘everyone lies’ defense ended up hurting Litvak as much as it helped,” Bissinger said.

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