TD Securities will pay over $28.5 million under agreements with various regulators over alleged civil and criminal violations related to fraudulent trading in the U.S. Treasurys market — specifically tens of billions of dollars in fraudulent "spoof" orders.
The broker-dealer has entered into a deferred prosecution agreement with the Justice Department, agreeing to pay $15.5 million in a criminal monetary penalty, forfeiture and victim compensation, to resolve federal criminal charges filed in New Jersey, the department announced Monday.
The charges concern a fraudulent scheme that involved hundreds of episodes of unlawful trading in the secondary market for U.S. Treasurys, according to the DOJ.
Separately, TD Securities agreed to pay a $6.5 million civil monetary penalty, about $400,000 in disgorgement and $135,000 in interest in an agreement with the Securities and Exchange Commission over the allegedly fraudulent trades. The disgorgement will be credited toward the company's payment owed to the Justice Department, according to the SEC, which censured the broker-dealer.
In addition, the Financial Industry Regulatory Authority announced a separate, related settlement with TD Securities, which agreed to pay a roughly $6 million fine.
The case involves the former head of the TD Securities desk responsible for U.S. Treasurys, Jeyakumar Nadarajah, who was indicted on Nov. 7 in connection with the alleged scheme and is awaiting trial, according to the Justice Department.
"TD Securities placed hundreds of orders to buy and sell U.S. Treasurys 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. Treasurys 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," said Argentieri.
"The American public places trust in our financial institutions and relies on companies to be truthful and execute their obligations to traders in an ethical manner," Eric Shen, inspector in charge of the U.S. Postal Inspection Service's criminal investigations group.
"The USPIS' DOJ mail fraud team found there was a blatant violation of that trust, as this individual placed billions of dollars in spoof orders, distorting supply and demand and causing significant losses. These charges send a clear message that such deceptive practices will not be tolerated, and we are dedicated to protecting the integrity of our markets and the interests of honest investors," Shen said.
Nadarajah engaged in a scheme to defraud in connection with the purchase and sale of Treasurys in the secondary market, according to DOJ, which cited court documents and admissions. Nadarajah placed hundreds of orders to buy and sell U.S. Treasurys, intending to cancel them before execution, the department alleges.
