Former Nomura Trader Beats SEC Claims in Lawsuit Over Bond Price Lies

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(Bloomberg) – A former senior bond trader at Nomura Holdings Inc. has been found not responsible for defrauding bank customers by lying to them about prices for commercial mortgage-backed securities.

Friday’s jury verdict in Manhattan federal court after a week-long trial is another blow to the US government’s attempts to rein in questionable practices by bond traders.

James Im, who led the firm’s CMBS office from 2009 to 2014, has been charged by US regulators with securities fraud and aiding and abetting securities fraud.

The Securities and Exchange Commission sued Im in 2017, alleging he and a colleague defrauded the firm’s clients — including investment advisers and other fund managers trading the securities — by misrepresenting price information. to which they bought and sold bonds in order to boost the bank’s profit and their own bonuses.

Nomura agreed in July 2019 to reimburse customers $25 million to resolve claims that it failed to oversee traders. Kee Chan, who ran the CMBS office with Im from August 2009 to June 2012, agreed to pay over $200,000 in fines and be barred from the industry to resolve the allegations in 2017, without admitting nor deny conduct.

Im, 45, and Chan were among the latest targeted by regulators in a US crackdown on questionable methods used by traders in asset-backed securities that began in 2013. More than 20 traders have been fired or suspended. leave during the US investigation. and at least eight, including four from Nomura, have been criminally charged, though prosecutors have struggled to stick to convictions.

Many Wall Street firms have changed policies in response to the investigations, including Nomura, which banned lying to clients after the January 2013 arrest of former Jefferies Financial Group Inc. trader Jesse Litvak, the first person accused of repression. Litvak was convicted in 2014 but won a retrial on appeal. He was convicted again in 2017 and sentenced to two years in prison, but released after seven months when the second conviction was also overturned – on the same day a jury acquitted the former chief executive of Cantor Fitzgerald LP , David Demos, of similar charges. Prosecutors decided not to try Litvak a third time.

Im spoke up in his own defense, testifying that he sometimes misled clients about the prices at which Nomura bought or sold bonds or claimed he was negotiating with a fictitious third party.

Like the others targeted in the investigation, Im’s lawyer argued that his clients were sophisticated investors who relied on complex models to value bonds, adding that any information he provided over the negotiations was taken with a grain of salt and not material, or significant enough to influence their decisions.

“He traded with the most sophisticated hedge funds in the world. He traded with them at a price they agreed within a range they calculated to be fair, in a transaction they could walk away from at any time,” Matthew Ingber told the jury during his final argument. “It’s the car salesman saying, ‘Sorry, but my boss says that’s the best I can do. “”

Richard Hong, an SEC attorney, said in his own closing argument that Im lied to clients to make money and wanted to put Nomura’s CMBS office on a par with bigger players like Goldman Sachs Group Inc. and Morgan. Stanley.

Nomura “is not in a used car or commercial carpet business,” he said. “It’s in a heavily regulated industry, regulated by bodies like the SEC, Finra and other regulators.”

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

©2022 Bloomberg LP

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