The Canadian multinational banking and financial services company Scotiabank will pay $127.4 million after admitting to an eight-year spoofing scheme. The U.S. Department of Justice (DOJ) and the Commodities Futures Trading Commission (CFTC) explained that the fraud was committed by four of its traders, who rigged precious metals futures contracts to "trick other market participants" to benefit the bank and themselves.
Federal regulators also explained that the multinational bank gave investigators false statements in 2018, when the bank was penalized $800,000 in a related action.
Scotiabank Admits to Role in Massive Price Manipulation Scheme
William F. Sweeney Jr., assistant director in charge of the FBI's New York field office, said in a statement that Scotiabank admitted to their role in the massive price manipulation scheme to serve the bank's best interests.
More so, authorities added that from January 2008 through July 2016, the four traders engaged in manipulative trading in the gold, silver, platinum, and palladium futures contracts markets on the New York Mercantile Exchange, Inc. and Commodity Exchange, Inc.
We are not surprised by the allegations, as banks worldwide have been accused of manipulating various financial instruments over the past decade or more.
The $127.4 million combines three orders for violations spanning spoofing, making false statements, swap dealer compliance, and supervision violations. It includes record-setting penalties of $42 million for spoofing and attempted manipulation and $17 million for false and misleading information. Plus, it also includes approximately $11.8 million in disgorgement and restitution for roughly $6.6 million in market losses that resulted from the illicit trading.
Scotiabank Operated Flawed Compliance Program
Despite Scotiabank's efforts, the firm ran a systematically flawed compliance program that failed to detect the traders’ unlawful practices. As a result, the DOJ has ordered the implementation of an independent compliance monitor for the following three years. Additionally, the firm will wind down its precious metals business.
Since the violations occurred, the DOJ noted that Scotiabank had taken all the necessary measures to prevent this from happening again by improving its compliance technology and trade surveillance tools. The bank also doubled its annual compliance operating budget and added more than 200 full-time compliance positions.
The CFTC will defer proceedings to suspend or revoke Scotiabank's swap dealer registrations if the bank implements the remediation plans. As a result, the bank released a statement explaining that they are committed to adhering to the authorities' standards.
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Dimond Kaplan & Rothstein, P.A. has vast experience in investment fraud cases and has been involved in the LIBOR manipulation lawsuit that has been pending for years. The firm has successfully represented numerous investment fraud victims who have lost money as a result of banks, brokerage firms, and scammers.
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