New York Democrat Arrested for Stealing from Victims of Hurricane Sandy
Three bond traders escaped relatively unscathed Thursday from a closely followed trial in Hartford where federal prosecutors argued that they deceived customers about securities prices to earn more for themselves and their company, Nomura Securities International.
The trial was one of a succession of Wall Street fraud prosecutions and part of crackdown by the government on allegedly dishonest trading. The jury returned one conspiracy conviction among the three defendants - a vindication of sorts for the government premise that lying to even the most sophisticated customer is a crime, but a sign as well of the difficulty in bringing such fraud cases
The three traders argued in their defense - through their 26 defense lawyers - that they were guilty at worst of making self-serving misstatements. The traders claimed that it doesn't matter whether they lie because their sophisticated institutional clients pay no attention to what they say anyway, relying instead on independent research.
Only Michael Gramins was convicted of a single count of conspiracy. The jury was hung, or unable to reach a verdict on two fraud charges against him and found him not guilty of six more.
The jury was hung on the conspiracy count against Ross Shapiro, but found him not guilty of nine other securities and wire fraud counts. The jury found trader Tyler Peters not guilty of everything - conspiracy and nine securities and wire fraud counts.
The trial began on May 8, and jurors began deliberating on June 6. The U.S. Attorney's office has not said whether it will retry the traders on those charges on which the jury did not reach a verdict.
The indictment in the case charged that Nomura traders, acting as middlemen, lied to buyers and sellers about bond prices in ways that allowed them to increase the spread between buy and sell prices and boost their profit.
The U.S. Securities and Exchange Commission, which has a parallel case, claims that "lies and omissions to customers" by Nomura traders generated at least $5 million in additional revenue for Nomura. More junior Nomura traders, who the SEC claims Shapiro, Gramins and Peters "trained and coached," generated $2 million more.
The three were paid in part based on their revenue generation. Over the period of the alleged conspiracy, the SEC claims Shapiro was paid $13.3 million, Gramins $5.8 million and Peters $2.9 million.
Among the so-called Nomura victims were HIMCO, a subsidiary of the The Hartford Financial Services Group Inc., and Greenwich-based Ellington Financial. The traders work in New York but were tried in Hartford because of the Connecticut victims.
The Nomura trial followed a similar prosecution of former Jefferies Group bond trader Jesse Litvak. Litvak, who traded from his firm's Stamford office, was tried in New Haven on charges that he cheated customers of $2 million.
Litvak used the same defense. He was convicted of 10 fraud charges, but was largely successful on appeal.
The appeals court concluded that Litvak was hamstrung at his first trial because the judge wrongly prevented him from presenting an expert witness who would have testified that sophisticated investors do not rely on prices quoted by traders like him and his three Nomura colleagues. Rather, the expert would have said, investors undertake extensive and complex valuations of their own.
Litvak was convicted of a single fraud charge at a second trial, sentenced in late April to two years in prison and his appealing again.
Besides the odd defense, the Nomura case has a following for another reason. Shapiro, Gramins and Peters supervised Nomura's Residential Mortgage Backed Securities desk. The collapse in 2008 of the real estate prices and mortgage-backed securities, known as RMBS, precipitated the global recession with which Connecticut continues to struggle.
Before joining Nomura, the three traders worked for Lehman Brothers, which was at the center of the meltdown and driven into the biggest bankruptcy in U.S. history by overexposure to speculative mortgages and related securities.
To stabilize the economy, the U.S. government poured money into RMBS through its $700 billion Troubled Asset Relief Program and began watching securities markets that had been operating with little or no oversight. The relief program's inspector general now claims to have learned that the government invested in a mortgage-backed bond that was a subject of alleged Nomura fraud.
RMBS are bundles of residential mortgage loans. They are not traded publicly, or listed like stocks, so accurate price information can be difficult to determine. As a result, the government argues that buyers and sellers often rely on broker-dealers such as Nomura to locate customers and arrange transactions.
Article From:- http://www.courant.com