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Three Nomura RMBS traders indicted on charges of conspiracy, fraud

By ValueWalk
Capital Markets

Three former Nomura Holdings, Inc. (ADR) (NYSE:NMR) (TYO:8604) RMBS traders have been indicted in a Connecticut federal court for swindling millions of dollars from customers while making millions themselves.

The 10-count indictment, returned on September 3 and unsealed on Tuesday, alleges that Ross Shapiro, Michael Gramins and Tyler Peters committed conspiracy and fraud offenses while supervising the Residential Mortgage Backed Securities Desk at Nomura Securities International in New York.

“The indictment alleges that, for several years, these three defendants handsomely profited by repeatedly lying to Nomura’s customers in violation of federal law,” said U.S. Attorney Deirdre M. Daly in a statement. “ The victims of this alleged conspiracy include numerous funds, retirement plan providers and taxpayer-provided bailout funds that helped our nation to recover from the 2008 financial crisis. Our investigation into corrupt practices in the RMBS and other financial markets continues.”

Shapiro was the managing director who oversaw all of Nomura’s trading in RMBS, Gramins was the executive director at the RMBS desk and oversaw trading of bonds comprised of sub-prime and option ARM loans, and Peters was the senior-most vice president of the RMBS desk and focused on Nomura’s trading of bonds composed of prime and alt-A loans.
Nomura RMBS Traders accused of manipulating the bond market
The three are accused of orchestrating a scheme of fraud and deceit to manipulate the bond market in their own favor, resulting in losses that were passed on to investors. They allegedly inflated purchase prices at which Nomura could buy a RMBS bond to induce customers to pay higher prices and deflated prices at which Nomura could sell.

They are also said to have trained their subordinates to lie to customers. In one instance, one of trader told a salesperson that he had “lied” about a bond price and “marked up by 2 pts,” to which the salesperson responded “haha sick ... well played.”

The three, former Lehman Brothers Holdings Inc Plan Trust (OTCMKTS:LEHMQ) employees, face one count of conspiracy, two counts of securities fraud, and seven counts of wire fraud each. The conspiracy count carries with it a maximum term of imprisonment of five years, and the securities and wire fraud have a maximum sentence of 20 years on each count.
“When investment professionals put profits before prudence and the law, it creates a dangerous environment for investors and threatens the integrity of our financial markets,” said Steven Perez, Special Agent in Charge of the Federal Housing Finance Agency Office of Inspector General, in a statement.

The SEC also announced on Tuesday related civil fraud charges against Shapiro, Gramins and Peters.

According to the commission’s complaint, the three generated at least $5 million in additional revenue from Nomura, and the lies and omissions by the subordinates they trained and coached generated at least $2

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