The U.S. Justice Department and the country’s derivatives regulator said on Monday they had filed civil and criminal charges against three European banks, which paid $46.6 million to settle the cases, and eight individuals for alleged manipulation in U.S. futures and commodities market.
UBS, Deutsche Bank and HSBC and former traders at the banks, as well as individuals at other firms, were charged following a large-scale multi-agency probe including the Commodity Futures Trading Commission (CFTC) into “spoofing” in metals and equities futures.
The case marks the first time the Justice Department and the CFTC had worked together, along with the Federal Bureau of Investigation, to bring both criminal and civil charges against multiple companies and individuals, and underlined the authorities’ increasing focus on holding individuals accountable for corporate wrongdoing.
Spoofing, which is a criminal offense under the 2010 Dodd- Frank financial reform law, involves placing bids to buy or offers to sell futures contracts with the intent to cancel them before execution. By creating an illusion of demand, spoofers can influence prices to benefit their market positions.
Deutsche Bank and UBS have agreed to pay $30 million and $15 million respectively to settle the civil charges in the case, while HSBC will pay $1.6 million, the CFTC said.
All three banks received reduced penalties from the CFTC for providing significant assistance in the investigations, which relate to activity that dates back as far as 2008. UBS self-reported the alleged misconduct by its traders to the regulator, the CFTC said.
The imminent arrests and charges were reported earlier by Reuters.
A spokesman for UBS did not immediately provide comment.
A spokesman for HSBC said the bank was pleased to have resolved the matter.
A Deutsche Bank spokesman said the bank “has provided substantial and proactive cooperation with the government’s investigation and has enhanced controls and surveillance to help ensure that the underlying conduct does not occur in the future.”
”PERNICIOUS’
The alleged activity saw manipulation of a range of precious metals contracts, including in gold, silver, platinum or palladium futures, as well as in S&P E-mini futures.
“Spoofing is a particularly pernicious example of bad actors seeking to manipulate the market through the abuse of technology,” James McDonald, the CFTC’s head of enforcement, said in a statement on Monday.
“These cases should send a strong signal that we at the CFTC are committed to identifying individuals responsible for unlawful activity and holding them accountable.”
Several of the individuals charged were former employees of the three banks, according to people with knowledge of the matter.
The Justice Department said it had charged James Vorley of the United Kingdom, France’s Cedric Chanu, Jiongsheng Zhao of Australia and New York resident Krishna Mohan with fraud and spoofing offenses.
Edward Bases and John Pacilio, both of whom are from Connecticut, have been charged with fraud in connection with an alleged scheme to engage in both solo and coordinated spoofing.
Andre Flotron, 53, a Swiss national living in New Jersey, has been charged with conspiracy to commit spoofing and fraud when he was a UBS AG precious metals trader in Switzerland.
Jitesh Thakkar of Illinois has been charged with developing a software program used by his co-conspirator to engage in spoofing, the Justice Department said.
Bases, Pacilio, Mohan and Thakkar were arrested by U.S. law enforcement on Monday, while Zhao was arrested by Australian authorities.
Vorley, Chanu, Zhao and Mohan could not be reached for comment, while Bases, Pacilio and Thakkar did not immediately respond to a request for comment.
”The cases against Mr. Flotron are misguided and have no merit. We will take the cases to trial and he will be exonerated,” Flotron’s legal counsel said in a statement.
Reuters first reported the multi-agency probe on Friday.
The bank investigations have been going on for more than a year, but the CFTC has pursued the charges against the traders as part of a more recent effort led by McDonald to hold individual employees accountable for corporate wrongdoing.
McDonald, a former prosecutor in the Southern District of New York who was appointed to the CFTC role in March, has said he aims to achieve that by encouraging companies and staff to report their own wrongdoing and cooperate with investigators, in return for more lenient penalties.
