The SEC orders find that Nomura bond traders made false and misleading statements to customers while negotiating sales of commercial and residential mortgage-backed securities (CMBS and RMBS).  According to the SEC’s orders, several Nomura traders misled customers about the prices at which Nomura had bought securities, the amount of profit Nomura would receive on the customers’ potential trades, and who currently owned the securities, with traders often pretending that they were still negotiating with a third-party seller when Nomura had, in fact, already bought a security.  The SEC’s orders further find that Nomura lacked compliance and surveillance procedures that were reasonably designed to prevent and detect this misconduct, which inflated the firm’s profits on CMBS and RMBS transactions at its customers’ expense.  The SEC previously filed charges against two CMBS and three RMBS traders at Nomura, whose misrepresentations are described in the SEC’s orders.

“Firms acting as dealers in opaque markets like those for CMBS and RMBS must take steps to prevent misleading communications with their customers,” said Daniel Michael, Chief of the SEC Enforcement Division’s Complex Financial Instruments Unit.

Sanjay Wadhwa

“These orders underscore that firms must have adequate supervisory procedures, particularly surrounding the sale of complex instruments,” said Sanjay Wadhwa, Senior Associate Director of the SEC’s New York Regional Office.  “Weak procedures, such as those found here, may enable employee misconduct to go undetected.”

To settle the charges that it failed to reasonably supervise its traders, Nomura agreed in the two orders to be censured and to reimburse customers the full amount of firm profits earned on any RMBS or CMBS trades in which a misrepresentation was identified, paying over $20.7 million to RMBS customers and over $4.2 million to CMBS customers.  Nomura also agreed to pay a $1 million penalty in the RMBS-related case and a $500,000 penalty in the CMBS-related case.  Both orders note that the penalty amounts reflect substantial cooperation by Nomura during the SEC’s investigation, including remedial efforts by the firm to improve its surveillance procedures and other internal controls.

The SEC’s CMBS investigation and ensuing litigation was conducted by staff in the New York Regional Office, including Ladan Stewart, Chevon Walker, Richard Hong, and George Stepaniuk.  The case is being supervised by Mr. Wadhwa.  The RMBS investigation and ensuing litigation was conducted by staff in the Complex Financial Instruments Unit and the Boston Regional Office, including Susan Curtin, Kerry Dakin, Rua Kelly, Al Day and Celia Moore. The case is being supervised by Mr. Michael