NEW YORK (Reuters) - A U.S. appeals court reinstated the conspiracy conviction of a former Nomura Holdings Inc (8604.T) trader accused of lying to customers about mortgage bond prices, in a victory for prosecutors in their crackdown on improper sales tactics.
Friday’s 3-0 decision by the 2nd U.S. Circuit Court of Appeals in Manhattan makes Michael Gramins the only trader convicted at trial in the crackdown, which was unveiled in January 2013, whose conviction has survived the appeals process.
Gramins’ trial judge in Hartford, Connecticut had set aside the June 2017 jury conviction a year later, after the appeals court had voided the conviction of former Jefferies Group trader Jesse Litvak in a similar case.
The U.S. Department of Justice appealed, and Friday’s decision means Gramins can be sentenced. He could appeal his reinstated conviction and eventual sentence.
“This is a temporary setback,” Gramins’ lawyer Marc Mukasey said in a phone interview. “We are still 100% in the fight. There’s a long way to go.”
Thomas Carson, a spokesman for U.S. Attorney John Durham in Connecticut, declined to comment.
Nomura agreed in July to pay $26.5 million in fines and restitution to settle U.S. Securities and Exchange Commission charges it failed to properly supervise Gramins and four other bond traders, without admitting wrongdoing.
Prosecutors accused Gramins of training subordinates to lie to customers such as asset managers, hedge funds and insurers about bond prices, to make more money for Nomura.
Gramins was convicted of conspiring to commit securities fraud and wire fraud. His jury acquitted him on six other counts and deadlocked on two more.
U.S. District Judge Robert Chatigny set aside the conviction in June 18, saying it was tainted because another trader, Joel Wollman, had testified that Gramins owed him a duty to tell the truth about bond prices.
Chatigny said the 2nd Circuit had deemed such “point of view” testimony irrelevant in voiding Litvak’s conviction, the only other conviction in the crackdown, in May 2018.
But in Friday’s decision, Circuit Judge Debra Ann Livingston said Wollman’s testimony had “some tendency to make it more probable” that investors would have deemed Gramins’ lies significant.
“Wollman’s statements -none of which claimed that Gramins had acted as his agent or that Gramins owed him fiduciary duties - could not plausibly have prejudiced, misled, or confused the jury,” Livingston wrote.
The judge also expressed sympathy for Chatigny, saying “this novel form of prosecution” raised new legal issues, and 2nd Circuit precedents were “at times obscure.”
The case is U.S. v. Gramins, 2nd U.S. Circuit Court of Appeals, No. 18-2007.
Reporting by Jonathan Stempel in New York; Editing by Marguerita Choy