By Peter Kennedy
The Bank of Nova Scotia (Scotiabank) has agreed to pay US$127.5 million to the U.S. Justice Department and Commodity Futures Trading Commission (CFTC) in connection with a commodities price manipulation scheme.
The move comes after the Canadian banking and financial services firm settled a criminal case with the U.S. Department of Justice and three civil cases by the CFTC for alleged illegal “spoofing” as well as compliance and supervision failures.
In a press release, the CFTC said the first two orders require the bank to pay US$77.4 million to settle a CFTC enforcement action. This includes a record-setting US$17 million penalty for making false and misleading statements to the CFTC staff during the CFTC’s initial spoofing investigation. The third order requires the bank to pay a US$50 million civil monetary penalty to settle a separate enforcement action for swap dealer business conduct, compliance and supervision failures and making false or misleading statements.
The settlements include a resolution with the U.S. Department of Justice to resolve criminal charges related to the price manipulation scheme involving thousands of episodes of unlawful trading activity by four traders in previous metals futures contract markets.
Under the terms of a deferred prosecution agreement, Scotiabank agreed to the imposition of an independent compliance monitor, and will pay over $60.4 million in a criminal monetary penalty, criminal disgorgement, and victim compensation.
Part of the penalty is credited against payments made to the CFTC under a separate agreement with the CFTC.
“Four over eight years, Scotiabank traders placed thousands of orders for precious metals futures contracts in an attempt to manipulate prices for their own and the bank’s benefit and to deceive other market participants,” said Chief Robert A. Zink, of the Justice Department’s Criminal Division, Fraud Section.
In its press release, the Justice Department states that according to admissions and court documents, between approximately January 2008, and July 2016, four precious metals traders located in New York, London, and Hong Kong engaged in fraudulent and manipulative trading practises for gold, silver, platinum and palladium futures contracts that traded on the New York Mercantile Exchange Inc. (NYMEX) and Commodity Exchange Inc. (COMEX).
One of the traders, Corey Flaum, 42, of Delray Beach, Fla., pleaded guilty on July 25, 2019, to one count of attempted price manipulation in connection with his precious metals futures contracts trading at Scotiabank and another financial services firm. He is scheduled to appear before U.S. District Judge Brian Cogan for sentencing on January 27, 2021.
In a statement, Scotiabank said it fully reserved for the payments in these resolutions in prior quarters. Under one of the orders, CFTC will defer proceedings to suspend or revoke the Bank’s provisional registration as a swap dealer subject to the Bank’s implementation of a remediation plan, among other conditions.
“At Scotiabank, we understand that in order to maintain the trust of our stakeholders, we must adhere to trading-related regulatory requirements and compliance policies,” Scotiabank said. “We are committed to adhering to these standards.”
Scotiabank informed staff that it was closing its metals business and would set aside US$176.06 million to cover costs related to the closure and for the investigation into its practices.