The Securities and Exchange Commission has instituted two related enforcement actions against Nomura Securities International Inc., which has agreed to repay approximately $25m to customers for its failure to adequately supervise traders in mortgage-backed securities.
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 also show 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.
Nomura has accepted censure and is 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.
