Bank of America Fined $24M for U.S. Treasury Spoofing Incidents

Between October 2014 and February 2021, the Financial Industry Regulatory Authority (FINRA) asserted that Bank of America Securities incurred fines amounting to $24 million in connection with 717 instances of spoofing carried out by two former traders in the U.S. Treasury secondary markets, writes BankingDive.

According to FINRA, during this period, BofA Securities lacked adequate supervision and monitoring systems to identify spoofing activities in the Treasury market. Bill St. Louis, the Executive Vice President and Head of Enforcement at FINRA, emphasized the detrimental impact of spoofing on market transparency and integrity, particularly in the U.S. Treasury securities market.

Spoofing, a fraudulent trading practice, involves the placement of orders that traders have no intention of executing, creating a false appearance of market activity to influence the market in their favor. The two traders responsible for the spoofing incidents managed to evade detection by Bank of America because the bank did not implement a surveillance system for detecting Treasury market spoofing until November 2015. Moreover, the existing system was flawed, designed to detect spoofing by trading algorithms rather than manual actions by human traders. Bank of America's monitoring system also failed to identify specific orders entered by its traders into third-party systems until December 2020 and did not address potential cross-product spoofing until September 2022.

Tyler Forbes, the junior trader, faced accusations of placing 194 spoof trades before departing the bank in 2019. He pleaded guilty to manipulating Treasury prices and received a sentence of two years of supervised release, including one year of home confinement. Sidney Lebental, the former supervisor, was accused of placing 523 spoof trades and is currently undergoing a FINRA disciplinary proceeding. Lebental left the bank in 2021.

Bank of America's broker-dealer subsidiary accepted FINRA's findings without admitting or denying the charges. In a statement, the bank acknowledged the actions of its former employees and highlighted significant investments made in controls, surveillance, staffing, training, and policy updates in recent years. This penalty adds to another multimillion-dollar settlement earlier in the week, where Bank of America agreed to pay $12 million to resolve allegations related to the collection of demographic data from mortgage applicants.