Merrill Lynch Commodities Inc. (MLCI), a global commodities trading business, has agreed to pay $25 million to resolve the government’s investigation into a multi-year scheme by MLCI precious metals traders to mislead the market for precious metals futures contracts traded on the Commodity Exchange Inc. (COMEX), announced Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division and Assistant Director in Charge William F. Sweeney Jr. of the FBI’s New York Field Office.
According to MLCI’s admissions, beginning by at least 2008 and continuing through 2014, precious metals traders employed by MLCI schemed to deceive other market participants by injecting materially false and misleading information into the precious metals futures market. They did so by placing fraudulent orders for precious metals futures contracts that, at the time the traders placed the orders, they intended to cancel before execution. In doing so, the traders intended to “spoof” or 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. Over the relevant period, the traders placed thousands of fraudulent orders.
MLCI entered into a non-prosecution agreement (NPA) and agreed to pay a combined $25 million in criminal fines, restitution and forfeiture of trading profits. Under the terms of the NPA, MLCI and its parent company, Bank of America Corporation (BAC), have agreed to cooperate with the government’s ongoing investigation of individuals and to report to the Department evidence or allegations of violations of the wire fraud statute, securities and commodities fraud statute, and anti-spoofing provision of the Commodity Exchange Act in BAC’s Global Markets’ Commodities Business, whose function is to conduct wholesale, principal trading and sales of commodities. MLCI and BAC also agreed to enhance their existing compliance program and internal controls, where necessary and appropriate, to ensure they are designed to detect and deter, among other things, manipulative conduct in BAC’s Global Markets Commodities Business.
The Department reached this resolution based on a number of factors, including MLCI’s ongoing cooperation with the United States and MLCI and BAC’s remedial efforts, including conducting training concerning appropriate market conduct and implementing improved transaction monitoring and communication surveillance systems and processes.
The Commodity Futures Trading Commission (CFTC) announced a separate settlement with MLCI today in connection with related, parallel proceedings. Under the terms of the resolution with the CFTC, MLCI agreed to pay approximately $25 million, which includes a civil monetary penalty of $11.5 million, as well as restitution, and disgorgement, with restitution and disgorgement credited for any such payments made to the Department. In addition, the CFTC order imposes upon MLCI other remedial and cooperation obligations in connection with any CFTC investigation pertaining to the underlying conduct.
As part of the investigation, the Department obtained an indictment against Edward Bases and John Pacilio, two former MLCI precious metals traders, in July 2018. Those charges remain pending in the U.S. District Court for the Northern District of Illinois. See United States v. Edward Bases and John Pacilio, 18-cr-48 (N.D. Ill.). All defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.
This case was investigated by the FBI’s New York Field Office. Trial Attorneys Ankush Khardori and Avi Perry of the Criminal Division’s Fraud Section prosecuted the case. The CFTC also provided assistance in this matter.
The United States Department of Justice | June 25, 2019