Nomura Securities International will pay a fine of $25 million after the Securities and Exchange Commission accused several of the company’s former mortgage bond traders of lying to customers about the nature of the trades.
Mortgage bonds are not publicly traded on an exchange and pricing information for the bonds is not publicly available. Therefore, mortgage bond buyers and sellers use broker-dealers to execute individually negotiated transactions.
According to the SEC, several Nomura residential mortgage-backed securities and commercial mortgage-backed securities traders made “false and misleading statements” to customers while negotiating the sales of those bonds.
The SEC states that several Nomura traders misled customers about the prices at that Nomura paid for securities, the amount of profit Nomura would receive on the customers’ potential trades, as well as who currently owned the securities in question.
According to the SEC, the traders often pretended they were still negotiating with a third-party seller when, in actuality, Nomura had already bought the security.
The SEC previously charged two CMBS and three RMBS traders at Nomura with committing the actions described above. The action taken this week by the SEC covers the company’s “failure to adequately supervise” the traders.
The SEC’s orders also state that 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.”
According to the SEC, in order to settle the charges that it failed to reasonably supervise its traders, Nomura agreed to be censured and to reimburse customers the full amount the company profited on any of the questionable RMBS or CMBS trades.
As part of the settlement, Nomura will pay more than $20.7 million to RMBS customers and more than $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.
The SEC also notes 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.”
When asked by HousingWire, a spokesperson for Nomura said the company is not commenting on the action.
“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.”
