Nomura Securities International Inc. will pay $25 million to customers under a settlement announced Monday with the SEC over failing to adequately supervise traders of mortgage-backed securities involved in misconduct.
The Securities and Exchange Commission had already sued the traders and managers involved for misleading customers buying and selling commercial and residential mortgage-backed securities from 2010 to 2014. The two latest orders describe how several Nomura traders misled customers about the prices Nomura paid for the securities, the amount of profit Nomura would receive and who 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 order said.
Two Nomura CMBS traders misled or lied to investment advisers and other fund managers trading on behalf of clients to whom they owed fiduciary and other duties to obtain the best possible price, as well as financial institutions trading CMBS for their own proprietary accounts, the SEC said.
In the case of non-agency RMBS, Nomura purchased securities for its own account from one or more customers and then sold them to other customers, owning the bond "sometimes just momentarily," the SEC said. Nomura did not charge commission on the trades and its profit came from the difference between the buying and selling prices.
According to the second order, Nomura lacked procedures to prevent and detect the misconduct, allowing Nomura to profit at customers' expense. "Nomura had the means to monitor its traders' communications for false or misleading statements but failed to identify this misconduct," the order said.
SEC officials said they considered "the significant cooperation that Nomura has provided throughout the investigation," including remedial efforts to improve its surveillance procedures and other internal controls.
Nomura agreed in the two orders to be censured and to reimburse customers for profits earned on any RMBS or CMBS trades where the misrepresentations were found. Nomura will pay $20.7 million to RMBS customers and $4.2 million to CMBS customers, plus a $1 million penalty in the RMBS-related case and a $500,000 penalty in the CMBS-related case.
Calls to Nomura seeking additional information were not immediately returned.