Ex Nomura RMBS Traders Face Conspiracy and Fraud Charges

A federal grand jury in New Haven, Connecticut, has returned a 10-count indictment against three former residential mortgage-backed securities traders for Nomura Securities International, according to an announcement on the U.S. Department of Justice's website.

Ross Shapiro, 41; Michael Gramins, 33; and Tyler Peters, 32, all of New York, New York, have all been charged with multiple fraud and conspiracy offenses stemming from their actions when they supervised the RMBS desk for Nomura in New York, according to the unsealed indictment. All three defendants are former employees of Lehman Brothers.

According to the indictment, Shapiro, Gramins, and Peters conspired to defraud Nomura customers by fraudulently inflating the purchase price at which Nomura could buy an RBMS bond to induce customers to buy the bond at a higher price; the three defendants then fraudulently deflated the price at which Nomura could sell an RMBS bond in order to induce customers to sell the bonds at cheaper prices. Nomura and the three defendants illegally profited as a result of the scheme, the indictment stated.

The indictment also alleges that the three defendants trained their subordinates to lie to customers and encouraged them to do so after providing them with the language to use to deceive customers. The defendants also allegedly created fictitious third parties in order to increase their profits and colluded with at least one outside client to broker trades deceptively on their behalf.

"The defendants’ alleged scheme was simple: To drive up profits they lied to and deceived their victims."

"This indictment alleges that, for several years, these three defendants handsomely profited by repeatedly lying to Nomura’s customers in violation of federal law," said Deirdre M. Daly, U.S. Attorney for the District of Connecticut. "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. I commend SIGTARP, the FBI, the U.S. Department of Labor’s Office of Inspector General, Office of Labor Racketeering and Fraud Investigations, and the Federal Housing Finance Agency Office of Inspector General for their outstanding investigative work in this area."

Victims of the defendants' scheme include funds from around the world, retirement plan providers and a fund manager for the Troubled Asset Relief Program (TARP), according to the DOJ.

"The defendants’ alleged scheme was simple: To drive up profits they lied to and deceived their victims," said Christy Romero, Special Inspector General for the TARP (SIGTARP). "They are alleged to have overstated the price Nomura paid. They are also alleged to have created fictitious third-party sellers when the RMBS sat in Nomura’s inventory. And they are alleged to have bragged about it to each other."

This week's announcement of the indictments adds to Nomura's recent problems with its mortgage-backed securities practices. Nomura chose to go to trial with FHFA rather than settle claims that the Japan-based bank along with the Royal Bank of Scotland misrepresented the quality of mortgage-backed securities sold to Fannie Mae and Freddie Mac before the financial crisis. In May, a federal judge found the banks liable and ordered them to pay $806 million in damages; last week, that total was increased to $839 million.