WASHINGTON (Legal Newsline) -- The U.S. Commodity Futures Trading Commission has filed a complaint alleging the Royal Bank of Canada engaged in a wash sale plot worth hundreds of millions of dollars.
The complaint was filed April 2 in U.S. District Court for the Southern District of New York. According to the complaint, the plan involved exchange-traded stock futures contracts.
"From at least June 2007 to May 2010, RBC allegedly non-competitively traded hundreds of millions of dollars' worth of narrow based stock index futures and single stock futures contracts with two of its subsidiaries that RBC reported as "block" trades on OneChicago," the CFTC says.
CFTC claims these trades "constituted unlawful non-competitive trades, wash sales and fictitious sales." They "were not negotiated at arm's length between the counterparties to the trades, as required by law, but were instead designed and controlled by a small group of senior RBC personnel acting on RBC's behalf."
The CFTC claims the entire plan was hatched by RBC to gain Canadian tax benefits. The bank bought Canadian and American stocks that it believed would benefit them tax wise.
The CFTC also declared RBC "willfully concealed, and made false statements concerning, material aspects of its wash sale scheme." It unlawfully concealed material information regarding its trading activity and mischaracterized the terms of its transactions.
"A fundamental purpose of the futures markets is to provide an arm's-length mechanism for market participants to discover prices and shift risks associated with products traded in those markets," said David Meister, director of the CFTC's Division of Enforcement. "As we allege, RBC not only designed and executed a wash sale scheme that undermined that purpose, it went a step further and misled the exchange into believing that its conduct was lawful.
"(This) action should make clear that the CFTC will not hesitate to bring charges against even the most sophisticated market participants who unlawfully exploit the futures markets for their own gain."
The CFTC said it will seek fines and to permanently enjoin RBC from further violations of the Commodity Exchange Act and the CFTC's Regulations.