Deal will end criminal, civil investigation into former employee's fraud trading tactics
TD Securities has entered into a deferred prosecution agreement (DPA) with the U.S. Department of Justice to settle criminal charges related to unlawful trading practices in the U.S. Treasuries market.
The New York-based firm, a subsidiary of Toronto-Dominion Bank, will pay over US$15.5 million in penalties, forfeiture and victim compensation as part of the resolution.
The charges stem from a scheme led by Jeyakumar Nadarajah, former head of TD Securities' U.S. Treasuries trading desk. He allegedly engaged in a "spoofing" scheme by placing hundreds of fraudulent buy and sell orders for U.S. Treasuries with no intention of executing them.
This manipulation of the market created the false impression of supply and demand, deceiving other market participants and driving trades based on misleading information, according to the Justice Department.
“TD Securities placed fraudulent orders in a deliberate attempt to manipulate the U.S. Treasuries market. Such practices erode trust and undermine the integrity of our financial systems. The Justice Department remains committed to holding accountable those who engage in deceptive trading,” said Principal Deputy Assistant Attorney General Nicole Argentieri.
As part of the DPA, TD Securities will pay US$9.4 million in criminal fines, US$4.7 million in victim compensation, and additional forfeiture fees. The agreement also mandates TD Securities to enhance its compliance programs and cooperate with ongoing investigations.
Previously, Public Services and Procurement Canada (PSPC) – the procurement arm of the federal government – referred to the Royal Canadian Mounted Police (RCMP) three cases of suspected invoicing fraud by IT subcontractors.
Deceptive trading activities
TD’s settlement with the US Justice Department follows a separate indictment of Nadarajah in November 2023, who is awaiting trial for his role in the scheme. He faces charges for engaging in deceptive trading activities that manipulated billions of dollars in the U.S. Treasuries market.
“These deceptive practices violate public trust and distort market operations. We are dedicated to safeguarding the integrity of financial markets and ensuring fair practices for all investors,” said Eric Shen, inspector in charge of the U.S. Postal Inspection Service’s Criminal Investigations Group, remarked.
TD Securities also reached agreements with the Financial Industry Regulatory Authority (FINRA) and the U.S. Securities and Exchange Commission (SEC). The firm will pay $6 million USD to settle the FINRA investigation and an additional $7 million to resolve SEC charges, including a $6.5 million civil penalty.
TD Securities has taken remedial actions, including terminating Nadarajah and implementing improvements to its compliance procedures. The firm is required to report ongoing progress and compliance measures to the U.S. government.
The number of cases of employee fraud among city workers in Toronto has skyrocketed. In 2023, Toronto’s Fraud and Waste Hotline received 1,054 complaints made up of roughly 1,450 allegations.
