SEC Charges Former Head Traders at Nomura With Fraud

The Securities and Exchange Commission today charged a pair of former head traders who ran the commercial mortgage-backed securities (CMBS) desk at Nomura Securities International Inc. with deliberately lying to customers in order to inflate the profits of the CMBS desk and line their own pockets as a result.

The SEC alleges that James Im and Kee Chan each misrepresented price information while acting as intermediaries on trades with Nomura’s customers who sought to buy and sell CMBS on the secondary market.  In certain instances, Im and Chan allegedly pretended they were still negotiating bond purchases with a third-party seller at higher prices when Nomura had already acquired the bonds at a lower price.

The SEC alleges that in one instance, Im bragged about his purposeful deception of a customer, and Chan once altered an email to a customer to prop up his lie about the bid price for a bond.  According to the SEC’s complaints, Chan and Im fraudulently generated more than $750,000 in extra trading profits for the CMBS desk, and they received substantial bonuses based largely on the desk’s performance.

Chan agreed to settle the charges by paying $51,965 in disgorgement plus $11,758 in interest and a $150,000 penalty.  Without admitting or denying the allegations, Chan also agreed to be barred from the securities industry with the right to reapply after three years.  The settlement is subject to court approval.  The case continues against Im.

“As alleged in our complaints, Im and Chan operated under cover of an opaque CMBS secondary market to gain illegal trading profits and potentially larger bonuses by lying to firms on the other side of their trades about the prices at which they were buying and selling securities,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.

The SEC’s complaints, filed in federal court in Manhattan, charge Chan and Im with violating Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5. 

The SEC’s investigation, which is ongoing, has been conducted by Ladan Stewart, Chevon Walker and George Stepaniuk of the New York office.  The litigation against Im will be handled by Richard Hong, Ms. Stewart and Ms. Walker.  The case is being supervised by Sanjay Wadhwa.