Exclusive: Bank of America's trading practices have been probed, filing shows

NEW YORK/WASHINGTON Sat Jan 25, 2014 9:14am EST

A Bank of America sign is shown on a building in downtown Los Angeles, California January 15, 2014. REUTERS/Mike Blake

A Bank of America sign is shown on a building in downtown Los Angeles, California January 15, 2014.

Credit: Reuters/Mike Blake

NEW YORK/WASHINGTON (Reuters) - The U.S. Department of Justice and the Commodity Futures Trading Commission have both held investigations into whether Bank of America (BAC.N) engaged in improper trading by doing its own futures trades ahead of executing large orders for clients, according to a regulatory filing.

The June 2013 disclosure, which Reuters recently reviewed on a website run by the securities industry regulator FINRA, sheds light on the basis for a warning by the Federal Bureau of Investigation on January 8.

The warning, in the form of an intelligence bulletin to regulators and security officers at financial services firms, said that the FBI suspected swaps traders at an unnamed U.S. bank and an unnamed Canadian bank may have been involved in market manipulation and front running of orders from U.S. government-owned mortgage giants Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB).

Reuters has since learned that Bank of America's trading practices regarding Fannie and Freddie are the subject of probes, and that the investigations are ongoing.

Bank of America spokesman Bill Halldin declined comment when asked abut the investigations.

The disclosure on the FINRA site doesn't specifically accuse Bank of America of any wrongdoing.

It says: "We understand that the (U.S. Attorney's Office) is investigating whether it was proper for the swaps desk to execute futures trades prior to the desk's execution of block future trades on behalf of counterparties."

The filing, which identifies the U.S. Attorney's Office in Charlotte, North Carolina, where Bank of America is based, adds: "We also understand that the Commodity Futures Trading Commission is conducting a parallel investigation into the trading issue."

The filing cites the bank as the source of the information.

The disclosure is in a FINRA "BrokerCheck" report on Eric Beckwith, a former managing director at Bank of America's Merrill Lynch broker-dealer division in New York. BrokerCheck is an online system that allows investors to check the backgrounds of brokers for any regulatory issues or malpractice.

Representatives from the CFTC, and the U.S. Attorney's office in Charlotte declined comment.

The filing said investigators are also looking into whether Beckwith gave accurate information to the CME Group's Chicago Mercantile Exchange in connection with an investigation by the exchange into the trading.

Halldin said Beckwith left the firm in July.

Beckwith could not be reached for comment. The CME declined to comment.

Front running occurs when someone with advance knowledge of another market participant's plan to make a sizable transaction puts an order in first, often profiting from a market move that can occur once the big trade has gone through. It is a concern for many regulators as it pushes up the cost of trades entered into by investors, including pension funds and governments.

In the bulletin, the FBI warned of "unsophisticated tradecraft" such as hand signals or special ring tones that traders were using to deliver information about impending orders in the interest-rate swaps market.

The document also said that the inspector general's office of the Federal Housing Finance Agency, the regulator of Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB), is looking into the matter.

Representatives for Fannie Mae and Freddie Mac declined to comment.

(Reporting by Karen Brettell in New York and Aruna Viswanatha in Washington, Editing by Karey Van Hall and Martin Howell)

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Comments (12)
UNY wrote:
The concept of enough is foreign to these greedy plutocratic pigs. Even when they literally have their hired lobbyists write the law (so as to make what was once illegal, legal) and have a revolving door relationship with all the regulators (in other words teh guys “investigating” BOA today will be working for the bank tomorrow) these greedy pigs STILL have to steal. It’s kind of pathetic really. I used to get mad but now i just kind of pity the greedy pigs. After all, these are people who would sell their mothers and children into bondage if it brought them a few more bucks and shiny trinkets.

Poor, pitiful, pathetic, greedy pigs….

Jan 25, 2014 10:08am EST  --  Report as abuse
Gillison wrote:
Here is a good news for all: http://www.insidertradingwire.com/sandberg-sherylchief-operating-officer-of-facebook-inc-sells-16401096-worth-of-shares-symbol-fb/

Jan 25, 2014 1:23pm EST  --  Report as abuse
bertanderson wrote:
Seriously, another banking scandal, I’ve completely lost track of the number of banking, mortgage lending and investment company law suits in process. All I know is that the penalties are tiny relative to the profits so it’s no wonder these companies operate this way. The trading complexity is way out of hand. There are so many derivatives products that only these industries can understand them. If the regulators were to take away their licences for 5 years or more and put the CEOs in jail…wow, I think we would see them cleaning up their act. I read about them paying billions in penalties and this is just pocket change. I don’t know what the solutions is…it’s very sad state of affairs.

Jan 25, 2014 1:59pm EST  --  Report as abuse
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