At some point in the past few years, the Securities and Exchange Commission decided that Nomura Securities would suffer for the sins of the entire bond trading world. Practices that have been described as commonplace in the fixed-income world – fibbing about how much you paid for a bond, for instance, or spinning yarns about a nonexistent bidding war – evidently abounded at the Nomura debt trading desk.
But more sinister than any mendacious spread-fattening is the charge, leveled in court Monday by a former junior trader at Nomura, that the firm introduced him to a life of crime:
“The purpose was to sort of make a client feel like we were working for them, but in reality we were making more money,” [Caleb] Chao told jurors in federal court in Hartford, Connecticut. “I just graduated from college and I had no other prior experience. I was relying on how my bosses told me how the market operated."
Of course, making a client feel like you're working for them while in reality making money is the fundamental dynamic of all sales relationships. No sentient client would ever assume pristine motives on the part of a seller, regardless of industry (but particularly, we would assume, in fixed-income trading).
But as in the case of poor old Jesse Litvak, the feds have decided that there exists a point at which effective sales tactics begin to constitute fraud. In Litvak's case, that point was fabricating a chat message. For the three Nomura traders currently on trial, prosecutors are hoping to draw an even stricter standard. Not that Nomura's youngest traders were even aware of the line they were toeing:
“I wasn’t thinking about it in legal terms," said Chao, now a fixed-income salesman at StormHarbour Securities LLC in New York. “I thought it was OK because I continued to see it on a regular basis.”