Three stock traders who made millions from their brokerage firm are charged with repeatedly lying to customers about pricing information to boost their revenues, the Securities and Exchange Commission announced Tuesday.
Fraud charges have been filed against the three who were dealing in residential mortgage-backed securities. Victims included funds from around the world, retirement plan providers and a Trouble Asset Relief Program (TARP) fund manager, according to the U.S. Attorney for the District of Connecticut, who brought parallel criminal charges of fraud against the three.
Ross Shapiro, Michael Gramins and Tyler Peters defrauded customers to illicitly generate millions of dollars in additional revenue for Nomura Securities International, the New York-based brokerage firm where they worked at the time, the SEC says.
They misrepresented the bids and offers being provided to Nomura for the securities, as well as the prices at which Nomura bought and sold them, and the spreads the firm earned intermediating the securities trades. They also trained, coached and directed junior traders at the firm to engage in the same misconduct, the complaint says.
“The alleged misconduct reflects a callous disregard for the integrity and obligations expected of registered securities professionals,” says Andrew Ceresney, director of the SEC’s Enforcement Division. “Not only did these traders lie to their customers, but they created a corrupt culture on Nomura’s trading desk by coaching more junior traders to employ the same deceptive and dishonest trading practices we allege in our complaint.”
According to the SEC’s complaint filed in federal court in Manhattan, the lies and omissions to customers by Shapiro, Gramins and Peters generated at least $5 million in additional revenue for Nomura, and lies and omissions by the subordinates they trained and coached generated at least $2 million in additional profits for the firm.
Nomura determined bonuses for Shapiro, Gramins, and Peters based on several factors including revenue generation. Nomura paid total compensation of $13.3 million to Shapiro, $5.8 million to Gramins, and $2.9 million to Peters.
Customers sought and relied on market price information from these traders because the market for these types of securities is opaque and accurate price information is difficult for a customer to determine. Therefore it was particularly important for the traders to provide honest and accurate information, the SEC says. Shapiro, Gramins and Peters went so far as to invent phantom third-party sellers and fictional offers when Nomura already owned the bonds the traders were pretending to obtain for potential buyers.