Merrill Lynch fined by DOJ, CFTC for ‘spoofing’ in precious metals futures
Francine McKenna, 25 June 2019
Merrill Lynch’s global commodities trading business agreed to pay $25 million and enter into a non-prosecution agreement with the Department of Justice on Tuesday to settle charges regarding a multi-year scheme by its precious metals traders to mislead the market for precious metals futures contracts traded on the Commodity Exchange Inc. Merrill Lynch admitted to the allegations that beginning by at least 2008 and continuing through 2014, its precious metals traders schemed to deceive other market participants by injecting materially false and misleading information into the precious metals futures market by placing fraudulent “spoof” orders for precious metals futures contracts that, at the time the traders placed thousands of fraudulent orders, they intended to cancel before execution.
The intention was to manipulate the market by creating the false impression of increased supply or demand and, in turn, to fraudulently induce other market participants to buy and to sell futures contracts at quantities, prices and times that they otherwise likely would not have done so. MLCI and its parent company, Bank of America Corporation BAC, +1.88% also agreed to cooperate with the government’s ongoing investigation of individuals and to report to the government evidence or allegations of criminal violations. The DOJ also obtained an indictment against Edward Bases and John Pacilio, two former MLCI precious metals traders, in July 2018 related to this investigation. Those charges are pending. The Commodity Futures Trading Commission also settled charges with MLCI on Tuesday for related, parallel proceedings where MLCI agreed to pay a civil monetary penalty of $11.5 million.
