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Merrill Lynch fined by Justice Department, CFTC for spoofing in precious metals futures

Section: Documentation

By Francine McKenna, New York
Tuesday, June 25, 2019

Merrill Lynch's global commodities trading business agreed today to pay $25 million and enter into a non-prosecution agreement with the Department of Justice to settle charges regarding a multi-year scheme by its precious metals traders to mislead the market for precious metals futures contracts traded on the Commodity Exchange Inc.

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Merrill Lynch admitted to the allegations that beginning by at least 2008 and continuing through 2014, its precious metals traders schemed to deceive other market participants by injecting materially false and misleading information into the precious metals futures market by placing fraudulent "spoof" orders for precious metals futures contracts that, at the time the traders placed thousands of fraudulent orders, they intended to cancel before execution.

The intention was to manipulate the market by creating the false impression of increased supply or demand and, in turn, to fraudulently induce other market participants to buy and to sell futures contracts at quantities, prices, and times that they otherwise likely would not have done so.

MLCI and its parent company, Bank of America Corp., also agreed to cooperate with the government's ongoing investigation of individuals and to report to the government evidence or allegations of criminal violations.

The Justice Department also obtained an indictment against Edward Bases and John Pacilio, two former MLCI precious metals traders, in July 2018 related to this investigation. Those charges are pending. The Commodity Futures Trading Commission also settled charges with MLCI today for related, parallel proceedings where MLCI agreed to pay a civil monetary penalty of $11.5 million.

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