When Caleb Chao started working on Nomura Holdings Inc.’s mortgage-bond desk after graduating from college, he got an education very different from the one offered at Cornell University.
Testifying at the trial of three former Nomura traders, Chao said Monday that he was soon taught how to mislead customers about prices and other details in order to get larger commissions.
“The purpose was to sort of make a client feel like we were working for them, but in reality we were making more money,” Chao told jurors in federal court in Hartford, Connecticut. “I just graduated from college and I had no other prior experience. I was relying on how my bosses told me how the market operated."
Chao, who worked for Nomura from 2010 to 2014, is the second former trader at the Japanese firm to take the stand for prosecutors in the trial of three ex-colleagues accused of lying to their clients. Ross Shapiro, Michael Gramins, and Tyler Peters deny wrongdoing, saying their tactics were commonplace and didn’t deceive the sophisticated parties with whom they negotiated.
“I wasn’t thinking about it in legal terms," said Chao, now a fixed-income salesman at StormHarbour Securities LLC in New York. “I thought it was OK because I continued to see it on a regular basis.”
Specific Trade
Chao, who is testifying for prosecutors in exchange for not being prosecuted, was questioned Monday about a May 2012 trade with Hartford Investment Management Co. A portfolio manager at the firm, Aadil Abbas, testified last week that he wouldn’t have paid as much for a bond if he had known the information was bogus.
While Chao said he didn’t recall the details of the specific deal with Abbas, he said he would generally look to Gramins for advice on what to tell the customer.
“In a trade like this, he would instruct me on what I should be telling a client," Chao said. "In trades where he was not being straightforward, I would need some advice on what I was telling the client."
The former Nomura traders on trial are among more than a half-dozen people who have been charged for lying to customers. The crackdown began with the arrest of former Jefferies LLC managing director Jesse Litvak in January 2013. Litvak was sentenced last month to two years in prison.