Former Nomura Securities International Inc. trader Michael Gramins avoided jail time for lying to the company's customers about the prices of mortgage-backed bonds and dealt the government another blow in problematic crackdown on tactics used in trading complex securities were applied.
Gramins, a former executive director of Nomura's residential mortgage-backed securities counter, was sentenced Thursday to two years' probation and six months in prison by US District Judge Robert Chatigny in Hartford, Connecticut.
The 38-year-old Gramins, who was convicted by a jury in 2017, was among more than half a dozen traders accused by Connecticut federal prosecutors of misrepresenting the prices of mortgage-backed securities to customers in order to exploit their profits and bonuses Increase company. Since the securities are not traded on transparent exchanges, investors often rely on traders for valuations.
Prosecutors sent shock waves across Wall Street, suspending and leaving dozens of traders as broker-dealers increased control over trading desks and communicated more clearly with customers. But Gramins is the only one of the accused traders whose conviction has been on trial.
"Mr. Gramins failed to see or realize that in a risk-free business, a contract business where he was an intermediary in order to receive a commission, he could not positively lie about the prices in order to receive that commission without the counterparties increase knowledge and consent, ”said the judge during the sentencing.
Gramins, along with two other former Nomura dealers, was indicted and acquitted of fraud in 2015, but found guilty of a single conspiracy. Prosecutors had asked the judge to impose a "substantial prison term" to reflect the gravity of his crime and to deter others from committing similar crimes.
"Mr. Gramins had every advantage in life," said Federal Attorney David Novick at the conviction. "Despite all these advantages – or perhaps because of them – he must be subject to the same standard of justice as everyone else."
Gramins had asked Chatigny to keep him behind bars at all times, stating that he had already suffered "significant and irreversible professional and personal consequences as a result of his actions." He also said jail time was not necessary to get a message on the market because "the message has already been emphatically sent and clearly received".
Nomura dealers were caught in a raid that began with the arrest of former Jefferies LLC dealer Jesse Litvak in 2013. This alerted traders that they could potentially be prosecuted for tactics that were relatively common in the industry.
But federal prosecutors struggled to keep their charges. Litvak's 2014 conviction, like the guilty verdict, was appealed after a retrial in 2017. Former Cantor Fitzgerald LP CEO David Demos has been acquitted of similar charges.
The government was also unable to win any convictions of the two Nomura colleagues accused of Gramine. His former supervisor, Ross Shapiro, was acquitted of fraud despite a jury bogged down on a conspiracy against him, meaning he could be tried again. Another Nomura dealer, Tyler Peters, was acquitted.
A separately charged Nomura dealer pleaded guilty to the crackdown in 2017, as did two RBS dealers. All three have agreed to work with prosecutors and are awaiting conviction.
Marc Mukasey, an attorney for Gramins, said Thursday that "the prosecutor's case has no ground". "Based on what happened in this case, the government's call for a substantial prison sentence is grotesque."
After the conviction, Mukasey said he was "thrilled" with the court's decision and that "there will be justice".
One key piece of evidence that may have led the jury to convict Gramins was the recording of an internal Nomura phone call that the prosecutor played during the trial in which the dealer was talking about what to say to a customer he was lying to would have. That call came after Nomura warned its dealers not to mislead customers after Litvak's arrest.
A Nomura unit agreed to repay customers $ 25 million in July 2019 to clarify claims by U.S. regulators that they failed to supervise traders who misrepresented their negotiating mortgage sales.
Gramins and his co-defendants never denied making false statements. Rather, they argued that their behavior was industry standard, discounted by the sophisticated investors they traded with, and that customers never actually lost money.