Photographer: Kiyoshi Ota/Bloomberg

Nomura Jury to Resolve When Lies on Bonds Cross Fraud Line

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

Lying to customers may be morally wrong, but when the misrepresentations alter the price that an investor will accept or pay for a bond the behavior crosses the line to become criminal fraud, a U.S. prosecutor said Thursday.

Assistant U.S. Attorney David Novick summed up the government’s case against three former Nomura Holdings Inc. mortgage-bond traders who are on trial in Hartford, Connecticut. He said the false price information proved to be "critical" information that led clients to agree to transactions.

"We know the defendants lied," Novick told the jury. "What we’re really talking about here is materiality and the intent to defraud your customers."

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.

Josh Klein, an attorney for Shapiro, told jurors in his closing argument that Nomura’s clients were investors who made decisions based on a "highly sophisticated, multi-tiered, bottom-up, top-down process," with input from mathematicians, computer scientists and investment committees.

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

"They double-checked and triple-checked because that’s what their investors paid them to do," Klein said. "Highly sophisticated investors don’t give any significant weight to unverifiable information."

The prosecution also failed to show the defendants were aware their tactics were illegal, he said.

"If you don’t know that what you’re doing is illegal, you can’t be guilty of engaging in a conspiracy,” Klein said.

Attorneys for Gramins and Peters are scheduled to deliver their summations on Monday, when jurors return to court.

‘Obvious Proposition’

Novick, the prosecutor, told jurors that while it’s an "obvious proposition" that traders shouldn’t lie about important matters, the defendants knew it was specifically prohibited by securities laws. The conviction of former Jefferies LLC managing director Jesse Litvak in January was evidence of the legal standards in place, he said.

"This was the rule before Litvak, it was the rule after Litvak," Novick said. "Nobody needed someone to get indicted to know that you cannot lie about important things to make more money."

Earlier Thursday, U.S. District Judge Robert Chatigny began describing for jurors the allegations in the indictment and what the law requires prosecutors to prove beyond a reasonable doubt. The case, which began May 8, is expected to go to the jury early next week.

“A feeling that something wrong has been done isn’t sufficient to support a criminal conviction,” Chatigny said. “You must analyze the evidence and determine whether the government has proven each of the elements of the offense beyond a reasonable doubt.”

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