Three former New York-based bond traders for Nomura Securities International were indicted in federal court in Connecticut.

Ross Shapiro, Michael Gramins and Tyler Peters supervised the Residential Mortgage Backed Securities (RMBS) Desk at Nomura Securities International in New York.

In a parallel case, the Securities and Exchange Commission (SEC) accused Shapiro, Gramins and Peters with repeatedly lying to customers relying on them for honest and accurate pricing information about residential mortgage-backed securities (RMBS).

The SEC alleges that Ross Shapiro, Michael Gramins, and Tyler Peters defrauded customers to illicitly generate millions of dollars in additional revenue for Nomura.

They misrepresented the bids and offers being provided to Nomura for RMBS as well as the prices at which Nomura bought and sold RMBS and the spreads the firm earned intermediating RMBS trades.  They also trained, coached, and directed junior traders at the firm to engage in the same misconduct.

Shapiro was represented by Guy Petrillo of Petrillo Klein in New York.

Gramins was represented by Marc Mukasey at Bracewell Giuliani in New York.

And Peters was represented by Brett Jaffe at Alston & Bird in New York.

The SEC said that it separately entered into deferred prosecution agreements with three other individuals who “have extensively cooperated with the SEC’s investigation and provided enforcement staff with access to critical evidence that otherwise would not have been available.”

“The SEC is open to deferring charges based on certain factors, including when cooperators come forward with timely and credible information while candidly acknowledging their own misconduct,” said Michael Osnato, Chief of the SEC’s Complex Financial Instruments Unit.  “The decision to defer charges in this matter reflects the early and sustained assistance provided by these individuals.

Shapiro was the managing director who oversaw all of Nomura’s trading in RMBS.

Gramins was the executive director of the RMBS Desk and principally oversaw Nomura’s trading of bonds composed of subprime and option ARM loans.

Peters was the senior-most Vice President of the RMBS Desk and focused primarily on Nomura’s trading of bonds composed of prime and alt-A loans.

The indictment alleges that the three engaged in a conspiracy to defraud customers of Nomura by fraudulently inflating the purchase price at which Nomura could buy a RMBS bond to induce their victim-customers to pay a higher price for the bond, and by fraudulently deflating the price at which Nomura could sell a RMBS bond to induce their victim-customers to sell bonds at cheaper prices, causing Nomura and the three defendants to profit illegally.

Federal officials alleged that the three trained their subordinates to lie to customers, provided them with the language to use in deceiving customers, and encouraged them to engage in the practice.

In one instance, one of the defendants’ subordinate traders told a salesperson that he “lied” about the price of bond and “marked up 2 pts,” to which the salesperson responded “haha sick . . . well played.”

The defendants are also alleged to have created fictitious third parties in an effort to increase their profits, and colluded with at least one outside client to deceptively broker trades on their behalf.

In one instance, an investment advisor for another firm concocted a false story with Shapiro to tell to customers.

According to the indictment, he wrote to Shapiro asking, “when did I buy [the bond] and at what price.”

The victims of this scheme include funds from around the world, retirement plan providers and a Trouble Asset Relief Program (TARP) fund manager.

“This indictment alleges that, for several years, these three defendants handsomely profited by repeatedly lying to Nomura’s customers in violation of federal law,” said U.S. Attorney Deirdre M. Daly.  “The victims of this alleged conspiracy include numerous funds, retirement plan providers and taxpayer-provided bailout funds that helped our nation to recover from the 2008 financial crisis.  Our investigation into corrupt practices in the RMBS and other financial markets continues.  I commend SIGTARP, the FBI, the U.S. Department of Labor’s Office of Inspector General, Office of Labor Racketeering and Fraud Investigations, and the Federal Housing Finance Agency Office of Inspector General for their outstanding investigative work in this area.”