The Financial Industry Regulatory Authority announced Thursday $24 million in fines against Bank of America Securities over 717 spoofing incidents executed by two former traders in U.S. Treasury secondary markets between October 2014 and February 2021.
BofA Securities had inadequate supervision and monitoring systems to detect Treasury market spoofing during this time, the self-regulatory body said.
“Spoofing undermines the transparency and integrity of the markets by distorting the true nature of supply and demand. Spoofing is especially detrimental in the U.S. Treasury securities market, given its status as a benchmark for countless financial instruments and transactions,” Bill St. Louis, executive vice president and head of enforcement at FINRA, said in a statement. “This action sends a strong message that FINRA will aggressively pursue firms that engage in spoofing, including cross-product spoofing.”
Spoofing is a type of fraudulent trading that involves orders that the traders do not intend to have executed to create a false sense of market activity that advances in a direction they favor. Spoofing may lead participants into trading at a time, price or quantity that they otherwise would not have traded.
The two traders evaded detection by the bank because Bank of America did not have a surveillance system to detect spoofing in Treasuries until November 2015. However, the system was faulty because it was designed to detect spoofing by trading algorithms and not manually by a human trader.
Additionally, BofA Securities’ monitoring system did not catch specific orders its traders entered systems provided by third parties until December 2020. It also did not keep a check on potential cross-product spoofing until September 2022.
Tyler Forbes, the junior trader, was accused of placing 194 spoof trades before leaving the bank in 2019. He pleaded guilty to manipulating Treasury prices last year and was sentenced to two years of supervised release, including one year of home confinement, Reuters reported.
Meanwhile, Sidney Lebental, the former supervisor, was accused of placing 523 spoof trades and faces a FINRA disciplinary proceeding. He left the bank in 2021, according to the wire service.
The bank’s broker-dealer subsidiary consented to FINRA’s findings without admitting or denying the charges.
“This matter stems from the actions of two former employees,” Bank of America said in a statement to The Wall Street Journal. “Over the past several years, we have made significant investments to enhance our controls, including improved surveillance, increased staff, additional training, and updated policies. We worked cooperatively with FINRA to resolve this matter.”
This is not the first time Bank of America faced a multimillion-dollar penalty this week.
Bank of America agreed to pay $12 million Tuesday to settle allegations that many of its loan officers failed to collect race, ethnicity and gender data from mortgage applicants, but reported to the Consumer Financial Protection Bureau that the applicants chose not to respond to those questions.
