TD Securities has been charged with a scheme involving fraudulent trading in the U.S. Treasuries market through a practice known as “spoofing”, ThinkAdvisor reports.
In settlements reached with the Justice Department, the Securities and Exchange Commission, and the Financial Industry Regulatory Authority, TD Securities will pay a total of over $28.5 million to resolve the allegations against the broker-dealer.
Spoofing is a form of market manipulation, an illicit trading strategy in which a trader places one or more highly visible orders but has no intention of keeping them. The DOJ said TD Securities engaged in many of these episodes in the secondary market for U.S. Treasuries.
“TD Securities placed hundreds of orders to buy and sell U.S. Treasuries that it never intended to execute, in order to deceive market participants and manipulate prices by creating the false appearance of supply and demand,” said Principal Deputy Assistant Attorney General Nicole M. Argentieri, head of the Justice Department’s Criminal Division. “Such efforts to profit through unlawful trading undermine public confidence in U.S. Treasuries markets and defraud other market participants. The Criminal Division is committed to ensuring the integrity of our financial markets and holding accountable those who engage in deceptive trading practices.”
As part of a deferred prosecution agreement with the Justice Department, TD Securities will pay over $15.5 million in a criminal monetary penalty, forfeiture, and victim compensation. The firm will also pay the equivalent of the statutory maximum criminal fine in connection with the offense (approximately $9.4 million) and will ensure that victims of the offense are made whole through a claims administration process (approximately $4.7 million in victim compensation).
FINRA and the SEC announced separate settlements in related, parallel proceedings, in which TD Securities agreed to pay FINRA’s fine of approximately $6 million, and about $7 million to the SEC, which includes a civil monetary penalty of approximately $6.5 million, as well as about $400,000 in disgorgement and $135,000 in prejudgment interest.
The former head of the TD Securities desk that was responsible for trading U.S. Treasuries, Jeyakumar Nadarajah, was indicted in November 2023 in connection with this scheme and is awaiting trial.
The DOJ said that in hundreds of instances, Nadarajah placed orders to buy and sell U.S. Treasuries with the intent to cancel those orders before execution. According to prosecutors, he was trying to profit by injecting false and misleading information concerning the existence of genuine supply and demand for U.S. Treasuries, thereby deceiving other market participants and fraudulently inducing those participants to trade at prices, quantities, and times that they otherwise would not have traded.
As part of its deferred prosecution agreement, TD Securities, and U.S. parent TD Group US Holdings LLC have consented to continue to cooperate with the criminal division’s fraud section in any ongoing or future investigations. TD Securities and its parent must report evidence or allegations of conduct that may constitution a violation of U.S. anti-fraud, securities and commodities laws, DOJ said.
The department said it reached the resolution with TD Securities based on the nature and seriousness of the offense and TD Securities’ failure to voluntarily self-disclose the conduct.
TD Securities received credit for cooperating with the department’s investigation and for remedial measures taken, including firing Nadarajah, and reviewing and continuing to enhance its compliance function.
“Manipulative and deceptive trading undermines the integrity of our markets,” Mark Cave, associate director in the SEC’s enforcement division, said. “Broker-dealers and other firms cannot ignore their employees’ manipulative conduct and must take meaningful steps to detect and prevent it. Today’s action results from our continuing commitment to combating illicit trading.”
TD said through a spokesperson: “We take regulatory and employee conduct violations very seriously. We took action five years ago to report Mr. Nadarajah’s behavior to FINRA, terminated his employment and have since enhanced our monitoring and compliance capabilities. TD Securities values the trust our clients place in us and we are committed to meeting their ongoing needs.”
The attorneys at Lewitas Hyman include former senior attorneys at the SEC whose legal experience and industry knowledge make them uniquely qualified to provide counsel on securities regulatory, compliance and enforcement matters. When it comes to regulatory compliance and enforcement matters, our attorneys have dealt with investigations and enforcement actions stemming from allegations including violations of SEC, FINRA, and SRO rules and regulations. If your firm is facing an investigation from a regulatory agency, please contact Lewitas Hyman at (888) 655-6002 or through our online contact form.