RIA Compliance Blog
Earlier this month, the Securities and Exchange Commission announced that it had reached a settlement with Ross Shapiro, a former managing director of Nomura Securities International, Inc. (“Nomura”). The SEC filed a complaint against Shapiro and two other defendants, Michael A. Gramins and Tyler G. Peters, in September of 2015. The complaint alleged that between January 2010 and November 2013, Shapiro, Gramins, and Peters made misrepresentations to customers about the prices of residential mortgage-backed securities (“RMBS”) and manufactured housing asset-backed securities (“MHABS”), thereby violating the Securities Act of 1933 and the Securities Exchange Act of 1934.
An RMBS is a security whose underlying assets comprise residential loans. Customers who invest in an RMBS typically obtain payments derived from the interest and principal payments on these loans. Shapiro, Gramins, and Peters provided market information and sold RMBS and MHABS on behalf of Nomura, a FINRA-registered broker-dealer. The customers in question were funds that invested in RMBS.
The SEC’s complaint alleged that Shapiro, Gramins, and Peters made various misrepresentations to customers regarding the prices at which Nomura bought and sold RMBS and MHABS and that they misrepresented the amount of compensation that Nomura would receive for arranging any trades. For example, Shapiro, Gramins, and Peters allegedly deceived customers on numerous occasions regarding how much Nomura paid for RMBS and MHABS. Shapiro, Gramins, and Peters also gave clients the impression that Nomura had paid a higher price for RMBS and MHABS than it actually had. These misrepresentations were usually made via electronic communications such as instant messaging, emails, and online chats.
The complaint also alleged that Shapiro made misrepresentations on numerous occasions to the representatives of two Nomura customers. These misrepresentations pertained to the price of a bond that one of the customers intended to sell to other Nomura customers, with Nomura overseeing the transaction. Shapiro informed the selling customer that Nomura was not willing to pay more than a certain bid price, which resulted in the selling customer selling the bond for a much lower price than the customer originally intended. As a result of these deceptive statements, Shapiro was able to obtain over $1.1 million in extra profits for Nomura.
Shapiro consented to a judgment that provides that Shapiro will be permanently enjoined from causing further violations of the securities laws, and which orders him to pay a $200,000 civil money penalty. The action is still pending against the other defendants.
Gramins, Peters, and Shapiro were also criminally charged with deceiving customers about Nomura’s bond prices in May 2017. Gramins’s case went to trial, and he was convicted of conspiracy. In June of this year, a federal judge granted Gramins a new trial over a juror’s alleged confusion over whether Gramins owed his customers a duty of trust. The SEC has appealed the judge’s decision to grant Gramins a new trial to the Second Circuit. In October 2017, Peters filed a motion to dismiss the original complaint, alleging that the SEC failed to demonstrate materiality and scienter. A federal judge dismissed Peters’s motion to dismiss, finding that the complaint did sufficiently plead materiality.
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