A federal court Thursday ordered Royal Bank of Canada to pay a steep $35 million penalty for three years of anti-competitive practices while trading in U.S. commodities markets.
RBC entered into a consent order with the U.S. District Court for the Southern District of New York, acknowledging that it engaged in more than 1,000 illegal wash sales, fictitious sales and noncompetitive transactions in violation of the Commodity Exchange Act.
The infractions happened between June 1, 2007, and May 31, 2010. A wash sale is when a company sells a commodity for a loss then buys it back within 30 days.
The Commodity Futures Trading Commission said senior RBC officials designed a strategy to have two offshore subsidiaries trade with each other in Chicago. But they would soon afterward unwind those positions opposite each they each held in contracts for future performance of single stocks and stock indices. The net result would be a wash, but RBC would enjoy tax benefits from the losses.
“Illegal wash trade may seem innocuous. They are not. They provide misleading signals to the market and are thus prohibited, whether their purpose is to lessen a foreign tax bill or another reason,” Aitan Goelman, the CFTC’s director of enforcement, said in a statement announcing the settlement.