Nomura Securities International (NSI), a U.S.-based broker-dealer subsidiary of the Japanese financial services firm Nomura Holdings, has entered into a non-prosecution agreement following an investigation into its fraudulent trading of residential mortgage-backed securities (RMBS). The announcement was made by Connecticut U.S. Attorney Vanessa Roberts Avery.
The non-prosecution agreement reached between NSI and the U.S. Attorney's Office involves NSI paying a monetary penalty of $35 million and offering restitution of $807,717.68 to victim customers. These customers include entities affiliated with recipients of federal bailout funds through the Troubled Asset Relief Program (TARP) and firms acting as fiduciaries for pension funds, charitable and educational endowments, insurance companies, and other similar entities.
Previously, NSI had paid $20,125,614.59 in remediation to victims as part of its settlement with the Securities and Exchange Commission.
The investigation revealed that NSI orchestrated a fraudulent scheme between 2009 and 2013 with the intention of defrauding its customers in RMBS trades. The scheme aimed to boost NSI's profits from RMBS trades at the expense of its customers. The fraudulent activities primarily took place on NSI's trading floor in New York City and involved the active participation and encouragement of NSI employees and supervisors, including those responsible for compliance.
The fraudulent trading practices included misrepresenting material facts to deceive customers in trades. NSI traders engaged in deceptive tactics such as lying about the seller's asking price to the buyer, thereby pocketing the difference. In other instances, NSI traders misrepresented that bonds from NSI's inventory were being sold by a fictitious third-party seller, allowing NSI to charge the buyer an additional commission. NSI supervisors were found to be aware of and even instructing traders to use these fraudulent practices.
The resolution acknowledges NSI's cooperation, acceptance of responsibility, remediation efforts, and enhanced compliance program. Notably, NSI will not be required to retain an independent consultant for its compliance and ethics program due to its steps to prevent further fraud and changes in the RMBS secondary market structure that reduce the likelihood of recurrence.
The agreement announced Tuesday addresses only the corporate criminal liability of NSI and not criminal charges for any individual. Several former NSI employees have been charged in connection with NSI trading activities.
Various agencies, including the Special Inspector General for TARP, the Department of Labor-Office of Inspector General, the Federal Bureau of Investigation, and the Federal Housing Finance Agency-Office of Inspector General carried out the investigation. The prosecution of the case involves Assistant U.S. Attorneys David Novick, Heather Cherry, and Jonathan Francis.