Ex-Bank of America trader pleads guilty to Treasury spoofing

[NEW YORK] A former trader at Bank of America's Merrill Lynch unit admitted to manipulating Treasury prices through a spoofing scheme.

Tyler Forbes, 27, pleaded guilty in federal court in Brooklyn Friday (Apr 15) to working to rig the prices of Treasuries traded on the secondary market, consisting mostly of 2-and-3-year notes, from January to June 2019.

Prosecutors said he placed large electronic orders on one side of the market without intending to execute them - while at the same time entering smaller orders on the other side in order to raise or lower prices in his favour and increase profits. Many of Forbes' actual orders were "icebergs" - meaning they were only partially visible to the market at any particular time, while his fake orders were fully displayed, according to the government.

Spoofing typically involves flooding derivatives markets with orders that traders don't intend to execute to trick others into moving prices in a desired direction. While submitting and then cancelling orders isn't illegal, it is unlawful as part of a strategy intended to dupe other traders.

Prosecutors have increasingly focused on the practice since it was specifically prohibited by lawmakers in 2010, and the government has extracted more than US$1 billion in fines from companies including JPMorgan Chase & Co, Bank of America and Deutsche Bank to resolve liability for market manipulation tied to spoofing.

Merrill, whose investment banking and trading divisions were reorganised as BofA Securities in May 2019, agreed to pay US$36.5 million in June of the same year to settle US officials' claims that its commodities division manipulated the price of precious metals futures over a 6-year period. Two former traders at the firm were convicted in August for illegally flooding the market with buy and sell orders they quickly cancelled to move gold, silver or platinum prices in the direction they wanted.

Forbes, of Manlius, New York, pleaded guilty to a single count of manipulating Treasury prices, which carries a maximum sentence of 20 years in prison. He is scheduled to be sentenced on Jul 28 by US District Court Judge Rachel P Kovner.

While Forbes' employer wasn't identified by prosecutors, Financial Industry Regulatory Authority records (Finra) indicate he worked for Merrill Lynch from August 2016 until he was terminated in August 2019 for failing to observe the firm's trading policy.

Forbes, who became responsible for his own trading book at age 24 in late 2018, agreed to pay US$75,000 and be suspended from associating with any Finra member in all capacities for 16 months.

Forbes' lawyers didn't immediately respond to an email seeking comment. Bank of America spokesman Bill Halldin declined to comment. BLOOMBERG