A swap dealer settled DOJ and CFTC charges for spoofing, making false statements to regulators, and violations of CFTC external business conduct requirements.
DOJ Action. The DOJ entered into a deferred prosecution agreement ("DPA") with the firm to settle criminal charges involving an alleged price manipulation scheme involving spoofing in the metals futures markets. The DOJ charged the firm with one count of attempted price manipulation and one count of wire fraud for communications relating to the scheme. To settle the charges and avoid criminal prosecution, the dealer agreed to pay a penalty of $60.4 million. In addition, as part of the DPA, the firm agreed to, among other things, ongoing cooperation with investigations relating to the underlying misconduct, modifications to its compliance program, and retention of an independent compliance monitor.
CFTC Enforcement Actions. The CFTC announced three separate enforcement matters against the bank - two primarily related to the spoofing charges, and one related to alleged compliance failures involving external business conduct requirements.
Spoofing Order. In a settled administrative matter, the CFTC alleged violations of CEA Sections 9(a)(2), 4c(a)(5)(C), 6(c)(1) and Regulation 180.1(a). The order is partially based on activity that was the subject a previous CFTC order, in part due to the firm's alleged failure to provide full information to the CFTC. The firm agreed to, among other things, pay $6.6 million of restitution, a $42 million civil monetary penalty (half of which may be offset by a penalty paid to the DOJ) and $11.8 million in disgorgement.
False Statements Order. In a settled administrative matter, the CFTC alleged violations of CEA Sections 6(c)(2) and 9(a)(4) based on false and misleading statements during the course of CFTC and COMEX investigations. The firm agreed to, among other things, pay a civil monetary penalty of $17 million.
Compliance and Supervision Order. In a settled administrative order, the CFTC alleged violations of numerous provisions relating to the CFTC business conduct requirements (CFTC Rule 23.400, et seq.), as well as related supervisory and chief compliance officer failures. The CFTC alleged, among other things, that the firm provided improper pre-trade mid-market marks in violation of Regulation 23.431(a) et al., and failed to keep required records and obtain counterparty information concerning onboarding processes. The firm agreed, among other things, to pay a civil monetary penalty of $50 million and to take a number of remedial measures in exchange for the CFTC deferring the commencement of proceedings to suspend or revoke the firm's dealer status.
Primary Sources
- CFTC Order: BNS (Spoofing)
- CFTC Order: BNS (False Statement)
- CFTC Order: BNS (Compliance)
- CFTC Press Release: CFTC Orders The Bank of Nova Scotia to Pay $127.4 Million for Spoofing, False Statements, Compliance and Supervision Violations
- DOJ Press Release: The Bank of Nova Scotia Agrees to Pay $60.4 Million in Connection with Commodities Price Manipulation Scheme
- DOJ Deferred Prosecution Agreement: The Bank of Nova Scotia
- DOJ Deferred Prosecution Agreement - Information Supplement: The Bank of Novia Scotia
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.