Former Nomura Trader to Avoid Retrial Under Deal With Prosecutors

(Bloomberg) -- A former Nomura Securities International Inc. managing director reached a deal with federal prosecutors in Connecticut that will allow him to avoid a second trial on charges that he conspired to defraud clients by lying to them about the prices of mortgage-backed securities.

Ross Shapiro, the firm’s former head trader for mortgage-backed securities, had been cleared of eight fraud charges in a 2017 trial in Hartford, but jurors were deadlocked on a single conspiracy count. On Tuesday, he agreed to waive his rights to a speedy trial and a statute of limitations so he can complete a one-year pre-trial diversion program. After that, the case would be dropped.

Shapiro was one of more than a half-dozen people charged in a crackdown on questionable tactics used by Wall Street bond traders. Another Nomura trader, Michael Gramins, was convicted of one conspiracy charge during the Hartford trial. Jurors acquitted another, Tyler Peters. 

The deal largely closes the book on the crackdown by prosecutors, who weren’t able to make many of the criminal charges stick. Still, the effort had an impact. Many Wall Street said they would stop their traders from lying to clients about bond prices, and they ramped up monitoring of employee communications. 

The first trader charged, Jesse Litvak at Jefferies LLC, was convicted in 2014 but granted a new trial on appeal. He was convicted a second time in 2017 and sentenced to two years in prison, but was released after seven months when the second conviction was also thrown out by the appeals court -- on the same day a jury acquitted former Cantor Fitzgerald LP managing director David Demos of similar charges. Prosecutors decided not to retry Litvak a third time.

The conviction of Gramins was thrown out by a federal judge in 2018, but an appeals court reinstated the verdict the following year. He was sentenced to probation in December 2020. 

A Nomura unit in July 2019 agreed to repay customers $25 million to resolve claims by U.S. regulators that it failed to supervise traders who made false statements while negotiating sales of mortgage securities. Shapiro was barred from the industry in October 2018 under a settlement with the U.S. Securities and Exchange Commission.

Lied to Customers

As part of the deal, Shapiro will admit he intentionally lied to customers about the prices of mortgage-backed securities, Assistant U.S. Attorney David Novick said during a remote hearing before U.S. District Judge Robert Chatigny on Tuesday. 

Shapiro also will admit that prosecutors had enough evidence to let a jury decide whether the conduct was wrong, whether Nomura traders lied about bond prices to increase bonuses and profit, and whether a reasonable investor would view those misrepresentations as something that might influence their decisions. 

The Nomura traders never denied they lied to clients, arguing they never committed fraud because their conduct was common in the industry and was discounted by the highly sophisticated investors that they traded with.

The case will be dropped if he abides by the conditions of the diversionary program, including committing no new crimes, reporting to probation, maintaining employment and refraining from work in the securities industry.

Prosecutors and Shapiro’s lawyer, Guy Petrillo, declined to comment. 

The lower-court case is U.S. v. Shapiro, 15-cr-155, U.S. District Court, District of Connecticut.

©2022 Bloomberg L.P.