U.S. reaches deal on broker’s shady trading

Brokerage firm Nomura Securities International will pay US$35 million in a non-prosecution deal with U.S. authorities over alleged fraudulent trading practices.

The U.S. subsidiary of Japanese financial giant Nomura Holdings reached an agreement with the U.S. attorney’s office for the District of Connecticut in connection with fraudulent trading of residential mortgage backed securities (RMBS) between 2009 and 2013.

According to the government’s investigation, the firm used a variety of tactics to boost its trading profits at the expense of its institutional customers — including misrepresenting trading prices to increase spread commissions, and by selling bonds from the firm’s own inventory while claiming that they were being sold by a third-party to charge added commissions.

“[Nomura] conducted its scheme by misrepresenting material facts to deceive and cheat its customers in trades,” the U.S. attorney said in a release, adding that supervisory personnel at the firm “instructed its RMBS traders in, and caused them to use, these fraudulent trading practices.”

Additionally, it alleged that the firm lied to customers who suspected they’d been duped, and sought to conceal the trading activity from employees that weren’t part of the scheme to prevent detection.

Under the terms of the non-prosecution agreement, Nomura agreed to a penalty of US$35 million and to pay another US$800,000 in restitution to customers — in addition to the US$25 million worth restitution it has already paid as part of a previous settlement with the U.S. Securities and Exchange Commission (SEC) over the same conduct in 2019.

The deal means the firm will not be criminally charged, although several former employees have been charged individually.

“This resolution takes into account [Nomura’s] extensive cooperation, acceptance of responsibility for its and its employees’ criminal conduct, remediation efforts, including its discipline and/or termination of employees and its commitment to make complete restitution to all impacted customers, enhanced compliance program, and agreement to continue to cooperate with law enforcement,” the U.S. attorney said.

The firm was not required to hire an independent consultant to review its compliance and ethics program because it “has already taken steps to reasonably prevent and detect further fraud, and because of certain structural changes in the secondary market for RMBS that would make repetition of the conduct less likely,” the U.S. attorney said.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.