24 Oct 2018
Nomura and several of its affiliates have agreed to pay a total of $480 million to settle charges of misleading investors over the sale of residential mortgage-backed securities (“RMBS”) between 2006 and 2007, an issue which resulted in investors suffering ‘significant’ losses and also highlighted the bank’s poor due diligence procedures.
The settlement stems from allegations that Nomura securitised defective mortgage loans in its RMBS, but mislead investors over the quality of the loans.
It claimed that its due diligence process was “extensive,” and that it only worked with “hand-picked industry leading” due diligence vendors, meaning that its ‘superior standards’ and due diligence would see its loan performance surpass industry standards.
These claims, however, were false as ‘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.’
A statement from the Attorney for the Eastern District of New York, Department of Justice, explained: “Despite this knowledge, Nomura failed to address the weaknesses in its due diligence processes, and continued to do business with originators that, according to its own due diligence personnel, were “extremely dysfunctional,” had “systemic” underwriting issues and employed “questionable” origination practices.
Commenting on the settlement Nomura said that its subsidiaries had cooperated with the authorities. It added that although they
disputed the allegations made, Nomura considers 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.’
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