The Securities and Exchange Commission has charged three residential-mortgage backed security traders with fraud, accusing them of repeatedly lying to customers.
In a complaint filed in the Southern District of New York, the regulator alleged that Ross Shapiro, Michael Gramins, and Tyler Peters defrauded investors while working at Nomura Securities International.
According to the SEC, the trio misrepresented the bids and offers provided to Nomura, the prices at which Nomura bought and sold, and the spreads they earned for brokering the trades.
The three traders went so far as inventing phantom sellers and buyers for bonds that they were supposedly trying to obtain for customers. Those bonds were actually already owned by Nomura, according to the SEC.
Mortgage backed securities are investments in groups of mortgages that are lumped together. Shapiro was the head trader on the RMBS desk, while Gramins and Peters were senior traders on the desk. They are also alleged to have trained subordinates to follow the same misconduct.
The SEC complaint said: “Beginning in or about January 2010 through in or about November 2013, Shapiro, Gramins, and Peters repeatedly lied to, or otherwise misled, customers about, among other things, the prices at which Nomura had bought and/or sold RMBS and MHABS [manufactured house asset backed securities] and the amount of the firm’s compensation for arranging the trades.
“Shapiro, Gramins, and Peters also misled customers about whether they were getting the best price for their RMBS and MHABS trades and how much money they were paying Nomura in compensation.”
Their actions led to at least $US5 million in additional revenue for Nomura, while the subordinates they trained generated at least $US2 million in extra revenue, according to the complaint. Shapiro was paid total compensation of $US13.3 million over the period in question, while Gramins earned $US5.8 million and Peters $US2.9 million.
“Not only did these traders lie to their customers, but they created a corrupt culture on Nomura’s trading desk by coaching more junior traders to employ the same deceptive and dishonest trading practices we allege in our complaint,” said Andrew Ceresney, Director of the SEC’s Enforcement Division.
The SEC said today it had entered into deferred prosecution agreements with three other individuals who had cooperated with the investigation.
Nomura declined to comment.
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