(Bloomberg) — No one disputes that former Nomura senior trader James Im lied to his customers. The question for the jurors weighing his liability is whether someone believed and acted on lies.
Most read by Bloomberg
Im’s attorney told the jury in his closing statement Thursday that it is standard practice to stretch the truth and that Nomura Holdings Inc.’s customers, as sophisticated investors, were not fooled for a minute.
“They are the wine sommeliers of the investment world,” attorney Matthew Ingber told the panel in Manhattan federal court. “They know the vineyard, they know the grape, the soil, the value of the wine, how everything matured. It’s the NFL scouts who know every measurable trait that comes with every player in the draft.”
Im, who headed Nomura’s office for commercial mortgage-backed securities from 2009 to 2014, was sued in 2017 by the U.S. Securities and Exchange Commission. The SEC alleged that he defrauded the company’s clients, including investment advisers and other fund managers who trade the securities. , by misrepresenting bond price information to boost the bank’s profits and its own bonuses, which rose to $3.8 million, according to the agency.
Im was one of the last targets of regulators in a US crackdown on questionable methods used by asset-backed securities traders in the wake of the 2008 financial crisis.
In his closing, Ingber admitted that I lied to clients about the prices at which his company had bought or sold bonds, the bids and offers he had made on the securities, how much the company was being paid, and who actually owned the bonds. But that had no effect on their investment decisions, he said.
“No matter how many times the government repeats the mantra that it’s all about the lies, no matter how many times the government takes you through the chats, that’s not and never will be the full picture,” he argued. “He negotiated with the most advanced hedge funds in the world. He traded with them at a price they agreed to within a range they believed to be reasonable, as part of a trade they could walk away from at any time.”
Read more: Top Nomura trader admits lying to customers but says everyone else did
The SEC sued both Im and another trader, Kee Chan, who co-led the CMBS desk with him from August 2009 to June 2012. It claimed that I had fabricated entire conversations with non-existent third parties into “colorful but completely fictitious exchanges”, in one case negotiating with a third party at higher prices, while Nomura had already bought the bonds involved at a lower price.
Nomura agreed to reimburse customers $25 million in July 2019 to settle claims that it failed to monitor traders who made false statements while negotiating mortgage bond sales. To resolve the charges, without admitting or denying the conduct, Chan agreed in 2017 to pay more than $200,000 in fines and be banned from the industry.
“That’s how he took the tension away,” Ingber told the jury about Im on Thursday. “It’s the car salesman who says, ‘Sorry, but my boss says this is the best I can do.’ People can argue whether that practice is good or bad, one they liked or not, but it didn’t violate securities laws. This was not a departure from the standard of reasonable care in the CMBS industry.”
Richard Hong, an SEC attorney, said in his own closing argument that I lied to clients to make money and put Nomura’s CMBS firm at the level of bigger players like Goldman Sachs Group Inc. and Morgan Stanley wanted to place. But Nomura “doesn’t own a used car business or deal in carpets,” he said.
“It’s in a heavily regulated industry, regulated by the SEC, Finra and other regulatory organizations,” he said. “That is why Nomura repeatedly told its traders, including Mr. Im, that it was not OK to lie to Nomura’s customers.”
Read more: Ex-Nomura Traders on Trial as Part of US Crackdown — Scorecard
More than 20 traffickers were fired from their jobs or placed on leave during the US investigation, and at least eight, including four from Nomura, were charged with criminal charges, although prosecutors struggled to maintain convictions. Many companies changed their policies after the investigation, prohibiting traders from lying to customers and keeping a closer eye on their communications.
Like the others accused of the crackdown, Im argues that his lies were not material to the company’s customers, or significant enough to affect their investments. He took the position in his own defense, saying that his clients also lied to him about prices and that the misrepresentations did not affect the value of the collateral underlying the bonds.
The case is Securities and Exchange Commission v. Im, 17-cv-3613, US District Court, Southern District of New York (Manhattan).
Most read from Bloomberg Businessweek
©2022 Bloomberg LP