Aggregated News From Investment Management Regulators

CFTC Orders The Bank of Nova Scotia to Pay Record $77.4 Million for Spoofing and Making False Statements


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Washington, D.C. — The Commodity Futures Trading Commission today issued two orders filing and settling charges against The Bank of Nova Scotia (BNS), a provisionally registered swap dealer, arising from manipulative and deceptive conduct, spanning more than eight years and involving thousands of occasions of attempted manipulation and spoofing in gold and silver futures contracts traded on the Commodity Exchange, Inc. (COMEX). The combined orders require BNS to pay a total of $77.4 million in penalties and equitable relief, including a record-setting $17 million for making false and misleading statements to CFTC staff during the CFTC’s first investigation into the bank’s spoofing (False Statements Order), and a total of $60.4 million for spoofing and attempted manipulation (Spoofing Order). In addition to monetary sanctions, the Spoofing Order requires BNS to retain an independent compliance monitor.

Today’s orders come approximately two years after the CFTC first sanctioned BNS for spoofing in the gold and silver futures markets. [See CFTC Press Release No. 7818-18]. That order required BNS to pay an $800,000 penalty for spoofing engaged in by traders on the bank’s New York precious metals desk from June 2013 through June 2016. In that order, the CFTC expressly recognized and credited BNS for self-reporting and cooperation, in the form of a substantially reduced penalty.

As explained in today’s orders, however, multiple statements that BNS made during the CFTC’s investigation about the order entry operator identifiers (Tag50s) that its traders used to trade futures contracts—on which the CFTC predicated its findings and sanctions—were false. Today’s orders address those false statements and the true scope and nature of BNS’s wrongdoing.

Related Criminal Action

In a separate action, the Department of Justice’s Fraud Section today announced entry of a Deferred Prosecution Agreement with BNS in a parallel matter, deferring criminal prosecution of BNS on charges of attempted manipulation and wire fraud. Under the terms of the agreement, BNS has agreed, among other things, to pay $60.4 million, which represents the combined appropriate criminal fine, forfeiture, and restitution amounts in that matter, and to comply with certain obligations in connection with its corporate compliance program, including retaining an independent compliance monitor.

Case Background

The False Statements Order requires BNS to pay a $17 million civil monetary penalty for making false or misleading statements to CFTC staff. Specifically, the order finds that during the course of the CFTC’s prior investigation into BNS, the bank made multiple false and misleading statements of material fact to CFTC staff, and omitted material facts regarding the universe of BNS’s precious metal futures accounts, traders, and the Tag50s its traders used. According to the order, BNS knew or reasonably should have known that its statements were false or misleading because it possessed the information in its records and reported it to COMEX. The order also finds that BNS made multiple false statements to COMEX regarding the bank’s failure to maintain a central repository of Tag50s, and to the National Futures Association concerning BNS’s purported use of software to monitor manipulative or deceptive trading practices, including spoofing.

The Spoofing Order requires BNS to pay a total of $60.4 million, consisting of $6,622,190 in restitution, $11,828,912 in disgorgement, and a $42 million civil monetary penalty arising from manipulative and deceptive conduct, spanning more than eight years and involving thousands of occasions of spoofing and attempted manipulation. Specifically, the order finds that on thousands of occasions between approximately January 2008 and July 2016, BNS, by and through certain traders based in New York and overseas, placed orders to buy or sell gold and silver futures contracts with the intent to cancel those orders prior to execution. According to the order, the traders engaged in this unlawful conduct with the intent to manipulate prices by sending false signals of supply or demand designed to deceive market participants into executing against other orders the traders wanted executed. 

The Spoofing Order also finds that BNS’s compliance function failed to detect and deter the unlawful trading practices and that BNS’s compliance staff failed to act to stop the misconduct when they became aware of it. According to the order, on at least two occasions, senior members of BNS’s compliance group had substantial information regarding unlawful trading by one of the traders but did not take appropriate action to stop the behavior.

The Spoofing Order provides for offsets for certain payments made pursuant to the Department of Justice’s parallel criminal action.

The CFTC acknowledges and thanks the staff of the Department of Justice Fraud Section’s Commodities Fraud Group, the staff of 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.

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.

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Regulator Information

Abbreviation: CFTC
Jurisdiction: USA

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