A former Nomura Holdings Inc. senior trader admitted that he lied to clients about bond prices but said it was a common practice in the industry and never impacted clients’ investment decisions.

James Im, who led Nomura’s commercial mortgage-backed securities trading desk from 2009 to 2014, on Monday took the stand in his own defense against a Securities and Exchange Commission suit accusing him of lying to boost the firm’s profits and his own bonus.

Under questioning by his lawyer, Im testified that he sometimes misled clients about the prices at which Nomura had bought or sold bonds or pretended he was negotiating with a fictitious third-party. When he lied about who owned some bonds, he was trying to set a “floor,” or the lowest level at which he would buy a security, Im said.

But he said he didn’t think such lies constituted cheating the firm’s clients.

“The lie about who owned that bond was to avoid an uncomfortable conversation and not appear as the stickler on price,” Im said. “It was easier to deflect that and say there was a third party that owned it and not me.”

Clients Lie Too

But he said his clients also lied to him about prices. According to Im, their mutual fibbing never impacted investment decisions because it had no effect on the value of the collateral underlying the bonds.

Like other traders who’ve faced similar charges, Im says his clients were sophisticated investors who relies on complex models to value bonds and didn’t take trader’s statements at face value.

Im was among the last people targeted by regulators in a U.S. crackdown on questionable methods used by traders in asset-backed securities following the 2008 financial crisis. More than 20 traders were dismissed from their jobs or placed on leave during the U.S. investigation and at least eight, including four from Nomura, were criminally charged, although prosecutors had difficulty getting convictions to stick.

Nomura agreed to repay customers $25 million in July 2019 to resolve claims that it failed to supervise traders who made false statements while negotiating sales of mortgage securities. The SEC is seeking to force Im to disgorge his alleged gains and pay an unspecified monetary penalty. Im made $3.79 million in discretionary bonuses during the period when the agency says the activity occurred.

The case is Securities and Exchange Commission v. Im, 17-cv-3613, U.S. District Court, Southern District of New York.

Source:
courtesy of BLOOMBERG

by Chris Dolmetsch

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