Washington, D.C. — The Commodity Futures Trading Commission today issued three orders filing and settling charges against The Bank of Nova Scotia (BNS), a provisionally registered swap dealer, resolving two separate enforcement actions. The combined orders require BNS to pay $127.4 million for spoofing and making false statements [See CFTC Press Release No. 8221-20], as well as for swap dealer compliance and supervision violations and additional false statements. [See CFTC Press Release No. 8222-20]
“These record-setting penalties reflect not only our commitment to being tough on those who break the rules, but also the tremendous strides the agency has made in data analytics. Our ability to go through the electronic order book and look across markets has enabled the CFTC to not only spot misconduct, but also to uncover false and misleading statements,” said CFTC Chairman Heath P. Tarbert. “Over the last year, we have ushered in a new era of enforcement at the CFTC. Wrongdoers now have increasingly fewer ways to conceal their misconduct and face an even more unified front from civil and criminal authorities.”
“Entities seeking to cooperate with the CFTC, like all others that interact with the Commission, must tell the truth,” added Division of Enforcement Director James McDonald. “We now have the tools, including through the development of our data-analytics program, to better test and verify the information we receive. When entities are not completely truthful, they will be penalized.”
“BNS’s compliance and supervision violations highlight the need for all swap dealers to have the right tone at the top—plus appropriate programs and incentives in place—to instill a meaningful culture of compliance among their personnel,” added Division of Swap Dealer and Intermediary Oversight Director Joshua B. Sterling. “The CFTC will continue to apply rigorous oversight to all registrants, and firms will be referred to enforcement whenever there is a strong indication that our rules may have been broken.”
Spoofing and False Statements Enforcement Action
The first two orders require BNS to pay a total of $77.4 million to settle a CFTC enforcement action arising from manipulative and deceptive conduct that spanned more than eight years and involved thousands of occasions of attempted manipulation and spoofing in gold and silver futures contracts. BNS was originally penalized $800,000 in 2018 [See CFTC Press Release No. 7818-18] for spoofing in the gold and silver futures markets, but multiple statements the company made to CFTC staff during the course of that investigation—on which the CFTC predicated its findings and sanctions—were later proven to be false. The charges resolved today address those false statements (False Statements Order) and the true scope and nature of BNS’s wrongdoing that those false statements concealed (Spoofing Order). This includes a record-setting $17 million penalty for making false and misleading statements to CFTC staff during the CFTC’s initial spoofing investigation and a record-setting penalty of $42 million for spoofing and attempted manipulation. BNS is also required to pay $6,622,190 in restitution and $11,828,912 in disgorgement, and to retain an independent monitor.
The CFTC acknowledges and thanks the Department of Justice Fraud Section’s Commodities Fraud Group, the U.S. Attorney’s Office for the District of New Jersey, the U.S. Postal Inspection Service, and the Federal Bureau of Investigation for their assistance in this matter.
This case is brought in connection with the Division of Enforcement’s Spoofing Task Force, and the staff members responsible for this case are Jonah E. McCarthy, Jennifer Blakley, Dmitriy Vilenskiy, Hillary Van Tassel, A. Daniel Ullman II, and Paul G. Hayeck.
Related Criminal Action
In a parallel action, the Department of Justice announced entry of a Deferred Prosecution Agreement with BNS, deferring criminal prosecution on charges of attempted price manipulation and wire fraud. Under the agreement, BNS, among other things, will pay $60.4 million in criminal fines, forfeiture, and restitution. The CFTC’s Spoofing Order provides for offsets for certain payments made pursuant to the related criminal action.
See CFTC Press Release No. 8221-20 for additional details about this case.
Swap Dealer Compliance, Supervision, and False Statements Enforcement Action
The third order requires BNS to pay a $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 (Compliance and Supervision Order). The order finds that for tens of thousands of swaps, BNS: (i) failed to provide timely and accurate pre-trade mid-market marks, which had the effect of concealing BNS’s full markup from counterparties; (ii) violated various requirements relating to BNS’s counterparty onboarding process, recordkeeping, chief compliance officer reporting, and supervision; and (iii) made false or misleading statements to CFTC staff concerning its audio retention and supervision. The order finds that these violations occurred over a seven-year period.
The order requires BNS to retain an independent monitor. As set out in the order, BNS acknowledges that the findings of the order provide the Commission sufficient grounds to commence proceedings to suspend or revoke BNS’s registration status, but the Commission defers commencing such proceedings on the condition that BNS fulfills its obligations relating to registration, remediation, and the monitor.
The CFTC thanks and acknowledges the assistance of the National Futures Association. Pamela Geraghty, Andree Goldsmith, Elise Bruntel, Amanda Olear, and Joshua B. Sterling of the Division of Swap Dealer and Intermediary Oversight assisted with this matter.
The Division of Enforcement staff members responsible for this case are John Buffington, Alejandra de Urioste, Peter Janowski, Trevor Kokal, Candice Aloisi, Lenel Hickson, Jr., and Manal Sultan.
See CFTC Press Release No. 8222-20 for additional details about this case.