NatWest Markets Manipulation of Treasury Futures Markets by Spoofing Class Action

This class action accuses three companies of “unlawful and intentional manipulation of U.S. Treasury Futures contracts” and options on those contracts, as traded on US exchanges, including the Chicago Board of Trade (CBOT). The companies accused are NatWest Markets Securities, Inc., NatWest Markets, Plc, and NatWest Group, Plc (formerly RBS Securities, Inc., the Royal Bank of Scotland, Plc, and the Royal Bank of Scotland Group, Plc, respectively). The complaint alleges that the companies violated the Commodity Exchange Act (CEA).

The class for this action is all persons or entities who made transactions in Treasury Futures or Options on Treasury Futures traded on the Chicago Board of Trade between January 1, 2008 and May 31, 2014.

In other words, this class action is a civil action attempting to recover for others who were making transactions in the markets the companies manipulated. It is brought on the heels of a federal and state criminal action by the Department of Justice (DOJ) Criminal Division, Fraud Section and the US Attorneys’ Office for the District of Connecticut.

The complaint says that NatWest Markets Plc accepted a plea agreement on December 21, 2021 “to resolve criminal charges that NatWest Markets and NatWest Markets Securities, Inc. (‘NMSI’) defrauded other market participants in the Treasury Futures market between at least January 2008 through May 2014.”

Treasury securities are debt securities that can be sold, as bills, notes, bonds, or the like. They are issued by the US government and they pay interest until their maturity date, when their “par” amount—that is, the principal for the debt—is given back to the owner. Treasury Futures are agreements to buy or sell these debt securities on a particular date in the future.

How did NMSI perform this manipulation? The complaint alleges that it did it by “spoofing,” a process of placing orders for Treasury Futures and then intentionally canceling them before they can be executed. The fake orders send “false and illegitimate supply and demand signals to an otherwise efficient market[,]” the complaint alleges, adding, “As a result, [the companies] caused Treasury Futures prices to be artificial throughout the Class Period to benefit themselves financially, at the expense of other investors…”

The plea agreement required the companies to pay around $35 million in criminal penalties, disgorgement, and restitution.

According to the complaint, the Treasury Futures spoofing is not the first time the companies have manipulated financial markets: “As the DOJ explained, Defendant NatWest Markets has a ‘substantial prior criminal history’ including a deferred prosecution agreement related to manipulation of LIBOR, a guilty plea related to manipulation of foreign-exchange rates, and a non-prosecution agreement related to fraudulent misrepresentations in the purchase and sale of collateralized loan obligations and residential mortgage-backed securities.”

Article Type: Lawsuit
Topic: Fraud, Securities
Tags: Manipulation of pricing market etc., Securities, Securities Frauds