“The Securities and Exchange Commission today charged a pair of former head traders who ran the commercial mortgage-backed securities (CMBS) desk at Nomura Securities International Inc. with deliberately lying to customers in order to inflate the profits of the CMBS desk and line their own pockets as a result.” A press release from the SEC stated.
The two traders, James Im and Kee Chan “each misrepresented price information while acting as intermediaries on trades with Nomura’s customers who sought to buy and sell CMBS on the secondary market. In certain instances, Im and Chan allegedly pretended they were still negotiating bond purchases with a third-party seller at higher prices when Nomura had already acquired the bonds at a lower price.”
Im, 40, and Chan, 46, were both co-heads of the Commercial Mortgage Backed Securities (CMBS) desk in New York at the time of the alleged misconduct; Im left the firm in 2014 and Chan left in 2012.
“Chan typically intermediated trades between buyers and sellers of CMBS, with Nomura buying the CMBS for its own account from one customer and then selling the same CMBS to another customer.” The SEC complaint against Chan stated. “On such trades, Chan often negotiated Nomura’s purchase of CMBS from one customer and subsequent resale to another customer on the same day.
“Chan generated a profit for Nomura by buying and selling the security and collecting the ‘spread’ (or difference) between Nomura’s purchase and sale prices, which he negotiated separately, but often simultaneously, with each counterparty.”
“As alleged in our complaints, Im and Chan operated under cover of an opaque CMBS secondary market to gain illegal trading profits and potentially larger bonuses by lying to firms on the other side of their trades about the prices at which they were buying and selling securities,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.
CMBS pool commercial mortgages together and turn them into bonds which are then traded on the secondary market.
Chan paid over $200,00 in penalties and agreed to be barred from the securities industry for a minimum of three years- when he can reapply for reinstatement- while the case against Im is still ongoing.