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Business

Judge rules against Japanese bank Nomura in subprime trial

By
Kevin Dugan
Published May 11, 2015, 10:28 p.m. ET

A federal judge ruled against the Japanese bank Nomura on Monday, saying it lied about mortgage-backed securities that it sold to Uncle Sam during the run-up to the financial crisis — the first trial decision against a lender stemming from the subprime crisis.

Nomura — along with the Royal Bank of Scotland — had major lapses in due diligence and made material misstatements on offering documents for the securities, which were made up of home loans made to people who weren’t able to make good on their mortgages, said Judge Denise Cote in her ruling.

“The magnitude of falsity, conservatively measured, is enormous,” Judge Cote said, ruling with the Federal Housing Finance Authority, the parent entity of Fannie Mae and Freddie Mac.

Cote has yet to decide what Nomura and RBS will owe the FHFA, but the agency has sought as much as $1 billion and for the bank to take back the securities.

The decision against Nomura is a rebuke of Chief Executive Koji Nagai, who wanted to clear the bank’s name of any wrongdoing by going to trial, bank insiders have told The Post.

During the trial, which lasted almost a month, lawyers for Nomura had argued that because the offering documents were opinions, it didn’t need to have an “honestly held view” that the securities it sold were as good as they said they were.

But Judge Cote didn’t buy that.

The bank’s due diligence unit, which was supposed to be in charge of making sure that the loans were likely to be repaid, “was beholden to the Trading Desk,” Cote said.

Neil Spagna, who was then the head of that group, bragged that he “took the liberty to bullshit” RBS in selling defective loans after making its securities seem better than they really were, according to Cote’s ruling.

“While Nomura is still reviewing the court’s ruling, it disagrees with the court’s conclusion and intends to appeal the decision,” Andrew Squire, a spokesman for the bank, said in a statement.