NatWest Markets Plc said on Tuesday it has pleaded guilty in United States Federal Court to one count of wire fraud and one count of securities fraud “in connection with historical spoofing conduct by former employees” in US Treasuries markets between January 2008 and May 2014 and, separately, during three months of 2018.
NatWest Markets said it will pay $25.2 million in a criminal fine, $2.8 million of criminal forfeiture, and approximately $6.8 million in restitution.
“As previously disclosed … the 2018 trading occurred during the term of a non-prosecution agreement (NPA) between NatWest Markets Securities Inc. (NWMSI) and the United States Attorney’s Office for the District of Connecticut (USAO CT), under which non-prosecution was conditioned on NWMSI and affiliated companies not engaging in criminal conduct during the term of the NPA,” said NatWest Markets in a stock exchange statement.
“The relevant trading in 2018 was conducted by two NWM traders in Singapore and breached that NPA.
“NWM reported the trading upon discovery and, following investigation, dismissed the employees concerned.
“None of those involved in the earlier spoofing activity are still employed by NWM or NWMSI.
“The plea agreement reached with the United States Department of Justice and the USAO CT will resolve both the spoofing conduct and the breach of the NPA.”
The plea agreement also imposes an “independent corporate monitor.” In addition, NatWest Markets has also committed to compliance program reviews and improvements and agreed to reporting and co-operation obligations.
NatWest Markets Plc CEO Robert Begbie said: “We deeply regret the past behaviour of a small number of former employees which has led to today’s guilty plea and the agreement with the United States Department of Justice and USAO CT and are pleased to resolve this matter.
“The behaviour of these individuals was unacceptable and has no place in the bank we are today.”
The United States Department of Justice (DoJ) said in a statement: “NatWest Markets Plc (NatWest), a London, U.K.-based global banking and financial services firm, pleaded guilty today to various fraud schemes in the markets for US Treasury securities and futures contracts.
“NatWest pleaded guilty to one count of wire fraud and one count of securities fraud in connection with a criminal information filed today in the District of Connecticut.
“US District Judge Omar A. Williams accepted the pleas and sentenced NatWest to pay approximately $35 million in a criminal fine, restitution, and forfeiture.
“NatWest also will serve three years of probation and will agree to the imposition of an independent compliance monitor.”
Deputy Attorney General Lisa O. Monaco said: “As we have previously warned, there will be serious consequences for a company that breaches the terms of an agreement with the government.
“Today’s guilty plea by NatWest and the associated penalty show exactly that.
“Company executives should realize that investment in compliance programs can avoid situations like this, and take action accordingly.”
Acting US Attorney Leonard C Boyle for the District of Connecticut said: “NatWest is a repeat offender.
“In this instance, a criminal conviction was an appropriate penalty, given the conduct of NatWest’s supervisors, its compliance deficiencies, and its decision not to take the steps required to fulfill its agreement with this office that resolved a prior securities fraud scheme.”
Deputy Director Paul M. Abbate of the FBI said: “NatWest’s schemes were egregious – spanning multiple years and countries – and the sentencing today reflects that.
“Let this case be an example that the FBI will not tolerate companies that fraudulently interfere in U.S. markets for their own gain.
“The FBI and our law enforcement partners are dedicated to protecting the integrity of our financial institutions and the Americans who use them.”
Inspector in Charge Eric Shen of the US Postal Inspection Service’s Criminal Investigations Group said: “For over six years, NatWest engaged in separate fraud schemes to manipulate the market and unlawfully enrich themselves.
“Those who engage in this type of abuse of power should know they cannot escape detection and will be held accountable for their actions.
“The US Postal Inspection Service is proud to work alongside our fellow law enforcement partners to protect the integrity of the financial marketplace and it’s participants.”
The Department of Justice said that according to court documents and NatWest admissions, between January 2008 and May 2014, NatWest traders in London and Stamford, Connecticut, independently engaged in schemes to defraud in connection with the purchase and sale of US Treasury futures contracts.
Separately, in 2018, two other traders employed at NatWest’s Singapore branch engaged in a fraud scheme in connection with the purchase and sale of US Treasury securities in the secondary (cash) market.
In each scheme, NatWest traders engaged in “spoofing” by placing orders with the intent to cancel those orders before execution, attempting to profit by deceiving other market participants by injecting false and misleading information regarding the existence of genuine supply and demand in the market.
“The spoof orders were designed to artificially push up or down the prevailing market price so that the NatWest traders could trade more profitably as a result of these schemes,” said the DoJ.
“In some instances, one of the NatWest traders took advantage of the close correlation between U.S. Treasury securities and US Treasury futures contracts and engaged in cross-market manipulation by placing spoof orders in the futures market in order to profit from trading in the cash market.
“The 2018 securities fraud scheme constituted a material breach of the Oct. 25, 2017 Non-Prosecution Agreement between the US Attorney’s Office for the District of Connecticut and NatWest’s US broker-dealer subsidiary, NatWest Markets Securities Inc. (formerly RBS Securities Inc.), and occurred while NatWest (formerly The Royal Bank of Scotland Plc) was on probation following its May 20, 2015 guilty plea and Jan. 5, 2017 sentencing for conspiring to manipulate the foreign currency exchange market.
“A number of relevant considerations contributed to the department’s criminal resolution with NatWest, including the nature and seriousness of the offense, NatWest’s substantial prior history of other criminal conduct and civil and regulatory actions against it, its breach of a prior agreement, and the state of NatWest’s compliance program. “