04/04/2012 07:43:00 AM EST
CFTC Sues Royal Bank of Canada for Years Long Wash Sale Scheme
The Commodity Futures Trading Commission filed an
enforcement action against the Royal Bank of Canada alleging a years long,
riskless wash sale scheme conducted by a small group of RBC personnel to
generate certain lucrative Canadian tax benefits. The trades were not conducted
in an arms-length manner between the counterparties as required by law or in
accord with the price discovery purposes of the futures market, according to
the complaint filed by the agency. CFTC v. Royal Bank of Canada (S.D.N.Y.).
Beginning in June 2007 and continuing to May 2010, RBC
traded hundreds of millions of dollars worth of narrow based stock index
futures and single stock futures contracts with two of its subsidiaries. Prior
to each transaction the bank identified stocks in the U.S. and Canada that
would could be used to create certain tax benefits. The bank and a subsidiary
then bought and sold those stocks as well as the stock index futures and single
stock futures. The trades were conducted in a riskless manner so that the
profits and losses would wash to zero. The transactions, reported as block
trades, were arranged by a small group of senior RBC personnel acting for the
financial institution. The purpose of the transactions was to realize Canadian
tax benefits from holding the securities of certain public companies in Canada
and offshore trading accounts.
The complaint also claims that RBC attempted to conceal
the transactions from CME Group. When the transactions were reported to CME
Group RBC falsely stated that the single stock futures trading was at
arms-length between two counterparties. It concealed the fact that all the
trades were orchestrated by a small group within the bank. RBC also concealed the
fact that the transactions were designed to exclude non-RBC affiliated parties
from its futures trades.
The complaint seeks a permanent injunction and a civil
monetary penalty. The case is in litigation.
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