The government and the American subsidiary of Nomura Holdings Inc. have reached a settlement over allegations the investment banker misled investors about residential mortgage-backed securities.
Nomura Holding America Inc. is accused by the Department of Justice
of misleading RMBS investors in 2006 and 2007 about the quality and characteristics of securitized loans.
Nomura is accused of claiming in RMBS marketing materials
that its due diligence process was “extensive,” “disciplined” and “carefully developed.”
It also claimed that it only worked with “hand-picked industry-leading” due diligence vendors and that its loan performance should surpass industry standards.
“These claims were false,” a statement from Richard P. Donoghue, the U.S. Attorney for the Eastern District of New York, said.
“Nomura knew, based on its due diligence, that thousands of loans that it securitized in its RMBS did not comply with applicable underwriting guidelines or were supported by inflated and potentially fraudulent appraisals,” the Justice Department said. “Nomura concealed these deficiencies from investors, securitizing many of these defective loans as ‘favors’ to loan originators — including, for example, loans that one originator openly described to Nomura as ‘dogsh[*]t.'”
One of the members of Nomura’s RMBS due diligence group reportedly stated, “There is no such thing as a bad loan … just a bad price.”
RMBS investors — which included
university endowments, retirement funds, federally insured financial institutions and the government-sponsored enterprises — allegedly suffered significant losses due as a result of Nomura’s misconduct.
The Justice Department launched a multi-year investigation into Nomura’s conduct under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 that led to a settlement between the company and the government.
The statement said that while Nomura disputes the allegations, it has agreed to a settlement that includes $480 million in civil penalties.
“The company and the U.S. subsidiaries consider it to be in their best interests to conclude this matter and avoid protracted and expensive litigation concerning transactions and practices that occurred ten or more years ago.” Nomura said in a written statement.