Scotiabank Fined $127 Million for Price Manipulation, False Statements -- Update
August 19 2020 - 6:14PM
Dow Jones News
By Dylan Tokar
The Bank of Nova Scotia agreed to pay more than $127 million to
settle civil and criminal allegations in connection with its role
in what authorities described as a massive price-manipulation
scheme.
The fine is the result of multiple agreements reached Wednesday
with the U.S. Justice Department and the U.S. Commodity Futures
Trading Commission. The settlements stem in part from thousands of
manipulative orders for precious metals futures contracts placed on
U.S. exchanges over an eight-year period by four traders at the
bank, known as Scotiabank, the agencies said.
The settlements also resolve claims by the CFTC that Scotiabank
made false statements and incomplete disclosures about alleged
price manipulation by its traders in connection with a prior
investigation by the derivatives market regulator. Scotiabank also
agreed to resolve further claims by the CFTC related to its conduct
as a swap dealer. Under the agreements with both agencies, the bank
will be required to retain an independent compliance monitor for
three years.
The steep fine and imposition of a monitor reflected the
seriousness of Scotiabank's offense and the state of its compliance
program, Robert Zink, chief of the Justice Department's criminal
fraud section, said in a statement.
Scotiabank said Wednesday that it had set aside money for the
fines in earlier quarters.
"We understand that in order to maintain the trust of our
stakeholders, we must adhere to trading-related regulatory
requirements and compliance policies," the bank said. "We are
committed to adhering to these standards."
The price-manipulation scheme was compounded by several
compliance failures, federal prosecutors said. In one case, in
2013, one of the traders involved in the unlawful trading contacted
a compliance officer to seek clarification on the CFTC's guidance
on disruptive trading practices, they said.
The trader's email detailed how the trader was engaging in
problematic activity by placing groups of one-contract orders on
one side of the market to facilitate execution on the other,
prosecutors said. The compliance officer forwarded the note to a
colleague but made no effort to investigate the trader's practices,
they said.
The manipulation caused other market participants to lose about
$6.6 million, according to the Justice Department.
The department on Wednesday filed its agreement, which defers
criminal charges of wire fraud and attempted price manipulation, in
federal court in New Jersey.
The agreement requires Scotiabank to pay more than $60.4 million
in criminal penalties, disgorgement and victim compensation.
Prosecutors said half of the criminal penalty would be credited
against fines by the CFTC.
The CFTC agreement settled two separate enforcement actions
against Scotiabank, the regulator said -- one related to the
price-manipulation scheme, known as spoofing, and another related
to the bank's conduct as a swaps dealer, the regulator said.
Spoofing is designed to trick other investors into buying and
selling at artificially high or low prices.
In both actions, as well as in the agreement with the Justice
Department, Scotiabank was accused of misleading regulators at the
CFTC, and making incomplete disclosures, at times due to
inconsistent record-keeping.
Scotiabank was fined $800,000 by the CFTC in 2018 for spoofing
in the gold and silver futures markets. Statements the company made
to the regulator during the course of the investigation that led to
the earlier settlement had later proved to be false, the CFTC
said.
With regards to its swap dealer business, Scotiabank had failed
to meet certain disclosure, supervision and compliance
requirements, the CFTC said. It also made false or misleading
statements to CFTC staff about audio recordings used to supervise
its swaps business, the regulator said.
In the order settling the CFTC's claims, Scotiabank neither
admitted nor denied the regulator's findings.
Corey Flaum, one of the Scotiabank traders described in the
settlement, pleaded guilty to attempted price manipulation in 2019.
The former Scotiabank trader is scheduled to be sentenced early
next year, according to the Justice Department.
--Stephen Nakrosis contributed to this article.
Write to Dylan Tokar at dylan.tokar@wsj.com
(END) Dow Jones Newswires
August 19, 2020 18:59 ET (22:59 GMT)
Copyright (c) 2020 Dow Jones & Company, Inc.
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