Nomura Bond Fraud Case Winding Up as Lawyers Rebuff Charges

(Bloomberg) -- A federal jury is poised to take up fate of three former Nomura Holdings Inc. traders following a month-long trial on charges they lied to their customers about the prices of mortgage bonds and trained their subordinates to do the same thing.

Deliberations in Hartford, Connecticut are likely to start Tuesday after jurors heard closing arguments Monday from lawyers for Ross Shapiro, Michael Gramins and Tyler Peters. The trio are accused of fraud by misrepresenting the prices at which securities were bought and sold and lying about where bonds had been acquired in order to boost commissions.

They face prison terms if convicted. Their trial follows the conviction of Jesse Litvak, a former Jefferies LLC trader who was found guilty of one of 10 counts of securities fraud in January and sentenced to spend two years in prison and pay a $2 million fine.

Marc Mukasey, an attorney for Gramins, urged jurors to find his client not guilty of charges of conspiracy, securities fraud and wire fraud. Mukasey argued that the case only came about because the government “stepped into a market that it did not understand, with witnesses who did not remember, to prosecute people who didn’t think they were doing anything wrong and weren’t guilty of anything.”

Ex-Nomura Traders on Trial as Part of U.S. Crackdown: Scorecard

Michael Brown, a lawyer for Peters, said the defendants are alleged to have used electronic chats and emails to further their conspiracy -- yet they knew the negotiations were being archived and could be searched.

“When people are trying to do something that’s illegal they whisper,” Brown said. “They keep it quiet. They don’t do it out in the open.”

Peters was trained by his superiors to use certain tactics and thought they were simply part of the market, Brown said. He cited the testimony of one of the trio’s alleged co-conspirators, former Nomura trader Caleb Chao, who said he came to Nomura about a year after Peters and went through the same training. Chao testified for the government in exchange for not being prosecuted.

Mukasey said prosecutors approached the alleged victims years after the trades happened and showed them chats and emails from counterparties on the other side of the trade to point out that Nomura “may have gotten a bigger piece of the sales price,” he said.

“No one in this courtroom got scammed,” Mukasey said. “Nobody here bought a watch and later found out it was counterfeit. Nobody bought a house and found termites. Nobody agreed to pay $50 and got a bill for $75.”

Money Goes

Mukasey compared the case with buying a shirt from Old Navy and finding out the company kept a slightly larger piece of the purchase price than they knew.

“Is that the main focus of your bargain with Old Navy?” Mukasey asked, “Of course not. That’s absurd. It seems a little insane to call that a crime.”

Assistant U.S. Attorney Liam Brennan told jurors that the co-conspirators know how the scheme operated because they worked under the defendants, lied at their direction and worked in the “underbelly of the securities industry.”

“I would love to be able to bring you some honest people who have an insider’s view of what was going on in a fraud,” Brennan said. “But the point is honest people aren’t engaged in a fraud scheme. So you have to get people who engaged in it to tell you how it works.”

Brennan argued that the tactics have been illegal under securities laws for more than 80 years and that the conduct the defendants engaged in was illegal long before Litvak’s indictment.

“Information about price matters,” Brennan said. “Truth matters. Honesty matters. The law matters. To say that these are sharp business practices and everyone engaged in them is not just an affront to everyone in the securities industry, it’s an affront to everyone in every industry that has ever tried to be an honest dealer.”

U.S. District Judge Robert Chatigny is scheduled to give jurors final instructions on Tuesday morning before they begin deliberations.

To contact the reporter on this story: Chris Dolmetsch in New York State Supreme Court in Manhattan at cdolmetsch@bloomberg.net.

To contact the editors responsible for this story: David Glovin at dglovin@bloomberg.net, Paul Cox, Andrew Martin