Nomura Holdings (NMR), one of 18 financial institutions (including Goldman Sachs (GS), Deutsche Bank (DB), Bank of America (BAC), and J.P. Morgan (JPM)) that was sued by the Federal Housing Finance Agency for allegedly misleading Freddie Mac (FMCC) and Fannie Mae (FNMA) about the risks of mortgage-backed securities leading up to the financial crisis, is getting ready to go to court next week after refusing to settle with the government. The Japanese bank contends that not only did the two mortgage giants go looking for mortgage pools, but also they sought to make sure that certain of these mortgages would allow them to meet the Department of Housing and Urban Development’s affordable housing goals.
According to Nomura’s legal team, when choosing the loans as part of the loan groups that would support the tranches they planned on buying, Fannie and Freddie “carefully analyzed loan-level data” to make sure that the loan pools behind their certificates contained “as many goal-qualifying loans as possible.” This would suggest that while a lot of investors were trying to avoid risky loans to individuals that had low credit scores, Freddie and Fannie were doing the opposite by looking for high risk loans while making money with fat interest-rate yields—meaning they knew the risks they were taking on.
In other Nomura-related news, one of its ex-traders, Matthew Katke, has entered a guilty plea for conspiracy to commit securities fraud following a federal indictment against him. Katke traded in collateralized loan obligations and misled customers.
Regulators have been examining transactions involving corporate loan and mortgage-backed debt more closely ever since Jesse Litvak, a former trader of Jefferies Group LLC (JEF), was convicted of securities fraud. He is accused to lying about what he was charging clients. Litvak is appealing his conviction.)
Related to the probe, Nomura has put other traders on leave, and according to sources , reports Bloomberg, JPMorgan and Royal Bank of Scotland (RBS) have also reportedly suspended traders.
The Bank That Won’t Buckle, The Wall Street Journal, March 8, 2015
Nomura Said to Suspend Ex-RBS Debt Trader Amid Market Scrutiny, Bloomberg, March 11, 2015
More Blog Posts:
Ex-Nomura, RBS Trader Enters Guilty Plea to Bond Fraud, Institutional Investor Securities Blog, March 11, 2015
Wealthfront CEO Claims Schwab is Fooling Investors Over “Free” Automated Investment Platform, Stockbroker Fraud Blog, March 9, 2015