Nomura Trader on Trial for Lying About Bond Prices

(Bloomberg) — A former senior trader at Nomura Holdings Inc. lied to customers about bond prices to boost the bank’s profits and his own bonus, the SEC said in court.

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James Im, a Nomura managing director who headed trading in commercial mortgage-backed securities from 2009 to 2014, went on trial Wednesday in Manhattan. A 2017 Securities and Exchange Commission suit accused Im of misrepresenting prices to clients who sought to buy and sell CMBS on the secondary market.

“This case is about lies,” SEC lawyer Ladan Stewart said during opening statements. “Lies told by the defendant, James Im, a Wall Street trader. Lies he told repeatedly for many years. Lies he told to customers who expected him to be truthful.”

The regulator claims that Im and another trader, Kee Chan, who ran the CMBS desk with him from August 2009 to June 2012, pretended they were still negotiating with a third-party seller at higher prices when Nomura had already bought the bonds involved at a lower price. According to the SEC, their actions generated more than $750,000 in extra profits for the bank, which resulted in “substantial” bonuses, the SEC said.

Taking the Stand

Im is scheduled to take the stand in his own defense. Other witnesses expected to testify include Nomura compliance officer Nadine Cancell and Jonathan Raiff, one of Im’s former managers. Traders at other firms who bought and sold bonds with Im may also take the stand.

Nomura agreed to repay customers $25 million in July 2019 to resolve claims that it failed to supervise traders who made false statements while negotiating sales of mortgage securities. Chan agreed to pay more than $200,000 in penalties and to be barred from the industry in order to resolve the claims in 2017, without admitting or denying the conduct.

Im and Chan were among the last traders targeted by regulators in a US crackdown on questionable methods used by traders in asset-backed securities following the 2008 financial crisis. More than 20 traders were dismissed from their jobs or placed on leave during the US investigation and at least eight, including four from Nomura, were criminally charged, although prosecutors had difficulty getting convictions to stick.

Many Wall Street firms changed policies in response to the probes. Nomura outlawed lying to customers following the January 2013 arrest of ex-Jefferies Financial Group Inc. trader Jesse Litvak, the first person charged in the crackdown.

Like other traders accused of lying to customers about the prices of asset-backed securities, Im admits that he misrepresented prices in some transactions — but argues that the firm’s customers are sophisticated investors who rely on complex models to value bonds and don’t take trader’s statements at face value.

Michael Martinez, a lawyer for Im, repeated that theme in opening defense statements on Wednesdays, calling Nomura clients among “the most sophisticated investors in the world” and said Im’s lies had “zero impact” on their buying and selling decisions.

“The investors will tell you that dealers didn’t always tell the truth,” Martinez said. “They sometimes lied. And they took their statements with a grain of salt.”

In a June 2012 trade highlighted by the SEC, Im bragged about inducing a client to increase a bid, earning an additional $12,500 profit for his desk, and boasted to the original seller of the debt that he scored the extra profit:

Im: i told him i bot at 78-8 actually

Im: sshhhhh

Im: 🙂

Seller: ha

Seller: nice one

The SEC said Im continued to misrepresent bond prices even after the 2013 indictment of another trader prompted Nomura to warn its employees against lying.

Litvak was convicted in 2014 but granted a new trial on appeal. He was convicted again in 2017 and released two years in prison, but after seven months when the second conviction was also thrown out — on the same day a jury acquitted former Cantor Fitzgerald LP managing director David Demos of similar charges. Prosecutors decided not to retry Litvak a third time.

Im’s trial, which is being held before US District Judge J. Paul Oetken in Manhattan, is expected to last five to 10 days. The SEC is seeking to force Im to disgorge his alleged gains and pay an unspecified monetary penalty. Im made $3.79 million in discretionary bonuses during the period when the agency says the activity occurred.

The case is Securities and Exchange Commission v Im, 17-cv-3613, US District Court, Southern District of New York.

(Corrects spelling of Michael Martinez’s name in 10th paragraph.)

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