The Securities and Exchange Commission (SEC) has yesterday informed the public that it has instituted two related enforcement actions against Nomura Securities International Inc. The Japanese financial holding company has agreed to repay approximately $25 million to customers for its failure to adequately supervise traders in mortgage-backed securities.
Nomura bond traders made false and misleading statements to customers while negotiating sales of commercial and residential mortgage-backed securities (CMBS and RMBS).
The company also lacked compliance and surveillance procedures that were reasonably designed to prevent and detect this misconduct, which inflated the firm’s profits on CMBS and RMBS transactions at its customers’ expense. The SEC previously filed charges against two CMBS and three RMBS traders at Nomura, whose misrepresentations are described in the SEC’s orders.
Firms acting as dealers in opaque markets like those for CMBS and RMBS must take steps to prevent misleading communications with their customers,” said Daniel Michael, Chief of the SEC Enforcement Division’s Complex Financial Instruments Unit.
These orders underscore that firms must have adequate supervisory procedures, particularly surrounding the sale of complex instruments,” commented Sanjay Wadhwa, Senior Associate Director of the SEC’s New York Regional Office. “Weak procedures, such as those found here, may enable employee misconduct to go undetected.
To settle the charges, Nomura agreed in the two orders to be censured and to reimburse customers the full amount of firm profits earned on any RMBS or CMBS trades in which a misrepresentation was identified, paying over $20.7 million to RMBS customers and over $4.2 million to CMBS customers. The company will also pay a $1 million penalty in the RMBS-related case and a $500,000 penalty in the CMBS-related case.