Bank of Nova Scotia: The Cooperation Credit and the Missing Trading Records

The Bank of Nova Scotia spoofing CFTC settlement required $77.4 million for alleged precious-metals trading misconduct and false statements that concealed its scope. The bank, also known as Scotiabank, had already received a reduced penalty for cooperation before the agency alleged that its account concealed the full scope of the trading. For someone who knows the desk’s trading identifiers, surveillance data or internal alerts, this case reaches beyond the trades to the story the bank told about them.

The Commodity Futures Trading Commission announced the expanded resolution on August 19, 2020. Its spoofing order addressed conduct from approximately January 2008 through July 2016. Its separate false-statements order addressed what the bank told investigators and market supervisors.

How the Precious-Metals Desk Used False Orders

The commission alleged that the bank’s traders placed orders they intended to cancel to persuade other participants to fill trades they actually wanted. The New York desk made markets in precious metals and derivatives and traded futures principally to hedge customer orders and manage its overall position. The alleged spoofing exploited the information other traders used to decide where to trade.

The expanded order described four traders working from New York, London and Hong Kong. Their trading primarily involved gold and silver futures on COMEX, a futures exchange owned by CME Group, with limited instances involving platinum and palladium. According to the order, they manually placed a relatively small order intended to execute, then a larger order, or several small orders, on the opposite side of the market. That displayed interest was intended to make supply or demand look different from what it really was.

When the genuine order filled, the trader canceled the opposite-side orders within seconds, according to the CFTC. The order described thousands of occasions. The point of spoofing and layering was to get other people to trade against a false picture of the market.

Under its separate criminal deferred prosecution agreement, as described in the Justice Department’s account of the bank’s admissions, Bank of Nova Scotia admitted that its traders placed thousands of orders intending to cancel them. They sought to manipulate precious-metals prices and deceive other participants about supply and demand. The bank admitted that the deception sometimes induced people to trade at quantities, prices and times they otherwise likely would not have chosen.

The order could disappear after doing its job. The other participant’s trade remained.

What the Earlier Cooperation Credit Bought

On September 28, 2018, the commission accepted an early settlement with an $800,000 civil penalty, expressly reduced for self-reporting, cooperation and remediation. That order covered alleged gold and silver futures spoofing from June 2013 through June 2016 on the bank’s New York desk.

The original order described a bank that responded to a futures commission merchant’s alert by reviewing trading, terminating a trader and reporting the activity. It credited the bank with voluntarily producing hundreds of thousands of documents and providing trading information and analysis. The bank also represented that it had improved surveillance and training.

The later false-statements case challenged the completeness of that account. The CFTC alleged that its earlier settlement decision depended on representations about which accounts, traders and order-entry identifiers comprised the bank’s precious-metals trading. Those representations left out activity that the agency needed to examine.

The bank received credit for helping explain its trading while, according to the CFTC, its explanation concealed the trading’s true scope. We see a mountain of documents and, in the agency’s account, the trading records that mattered still missing.

What the Bank Left Out of Its Cooperation

The CFTC alleged that Bank of Nova Scotia’s false cooperation information concerned the accounts, traders and Tag50 identifiers that CFTC investigators needed to reconstruct the precious-metals desk. A Tag50 is an order-entry operator identifier. Some of the bank’s traders used more than one, so a list of people alone could not describe all of their trading identifiers.

The false-statements order alleged that, across five written submissions between February and July 2017, the bank omitted three accounts, three traders and at least twenty-seven Tag50s. Investigators had expressly requested all of those categories. The omissions included identifiers used by the trader the bank had already terminated for spoofing.

According to the commission, the bank possessed records identifying the missing accounts, traders and Tag50s when it made its submissions. It was also sending some of the same trader and identifier information to COMEX through CME Market Regulation while leaving it out of its responses to the CFTC. The agency attributed part of the problem to incomplete and inconsistent recordkeeping and reporting.

That overlap matters. An identifier present in an exchange submission but absent from the bank’s answer to investigators connects the missing trading to information already inside the business. We would examine the account records, identifier assignments and submissions together to see how the description of the desk changed depending on who asked. The commission alleged that the bank failed to correct its errors before submitting the earlier settlement offer.

COMEX Was Told There Was a Central Database

COMEX’s examinations tested the bank’s electronic trading records. According to the false-statements order, Bank of Nova Scotia repeatedly represented that it kept a database of the Tag50s assigned to its traders. It answered questions by pointing to policies and procedures that did not address that issue.

The commission alleged that the bank did not maintain a comprehensive repository throughout the examinations. For a person who administers trading access or reconciles exchange records, that is a concrete discrepancy: the claimed central list, the identifiers actually used and the records available to establish who used them.

What the CFTC Says NFA Was Shown

The National Futures Association received a different assurance about the bank’s monitoring. The commission alleged that a presentation described software used to detect manipulative or deceptive trading, including spoofing, without disclosing that no trade-order data had been imported. The officials who prepared that part of the presentation knew it was false, the order said. A surveillance program with no orders to examine, as the commission tells it.

These were different views into the same business. COMEX examined exchange trading records. NFA, the derivatives industry’s self-regulatory organization, was receiving a presentation on continuous monitoring. The CFTC’s Division of Enforcement was investigating the underlying trading and needed the complete account and identifier information.

A 2024 draft working paper from the World Federation of Exchanges research project, An Analysis of Market Manipulation Definitions Around the World, found that exchanges and authorities shared market-manipulation surveillance in 68% of surveyed cases. Its discussion describes software alerts followed by analyst investigation and collaboration among regulators, exchanges and brokers. The Bank of Nova Scotia allegations show why those separate views matter: information available to one overseer can expose what another was not told.

The Compliance Warnings That Went Nowhere

The CFTC’s spoofing order described warnings reaching senior compliance staff before the bank’s self-report. In August 2013, a Hong Kong trader responded to compliance guidance by explaining that he placed groups of one-contract orders to facilitate executions on the opposite side of the market. A senior compliance official forwarded the question to two other senior officials. According to the order, nobody investigated further, provided additional guidance or training, or followed up on the inquiry.

In February 2016, a futures commission merchant flagged six suspicious examples from that trader. Each involved groups of one-contract orders opposite executed iceberg orders. Iceberg orders display only part of the intended trade, making the visible size an incomplete picture of the order behind it.

The compliance officer who received the alert called the pattern “[p]retty obvious” when forwarding it internally. The same officer then gave the futures commission merchant this explanation, quoted in the CFTC’s order:

The small size of each displayed order became the explanation for dismissing the pattern. Yet the trader had already described using groups of those orders to facilitate trades on the other side. We would read the earlier question beside the later alert and reply. Together, they show what compliance was told and how it answered.

In the expanded order, the bank represented that it had expanded compliance and improved its surveillance tools. The earlier warnings make the practical question clear: what did the people responsible for monitoring do with the trading information they received?

What Is the Penalty for Market Manipulation?

In this case, the commission imposed separate civil payment obligations for the trading and for the false statements about it. The spoofing order required a $42 million civil penalty, $6,622,190 in compensation for harmed market participants and $11,828,912 in repayment of gains. The false-statements order imposed a separate $17 million civil penalty. That distinction puts a price on the misleading cooperation account itself. The broader $127.4 million CFTC announcement included a separate $50 million civil penalty for swap-dealer business-conduct, compliance, supervision and false-statement allegations.

What Evidence Is Required to Prove Fraud?

For these spoofing and false-cooperation allegations, the useful evidence connects the orders with the people and accounts behind them, then connects internal knowledge with the representations sent outside the bank. The trading sequence and the explanation of it belong in the same investigation.

Order records show what was entered, modified, filled and canceled. Identifier records connect those messages to trading operators and accounts. Internal questions, surveillance alerts and responses show what compliance knew. Submission letters and presentation materials show what the company told investigators and supervisors. The commission said its electronic order-book analysis helped it uncover both misconduct and false or misleading statements.

A related pattern appears in the CFTC’s complaint against 3 Red Trading. The agency alleged that the defendants used a platform’s self-trade prevention function to cancel displayed orders while almost simultaneously switching sides to trade against participants those orders had attracted. Some genuine orders were placed as icebergs, concealing their full size. That alleged cancel-and-flip mechanism differs from the sequence described at Bank of Nova Scotia, but both require a view of what happened on each side of the market.

An insider may understand the missing connection: which identifier belongs to which trader, why a dataset leaves out part of the desk, or why an alert received an explanation that the underlying orders contradict. Our work with commodities fraud whistleblower lawyers starts with that trading knowledge and the records that support it.

The Same Bank’s Later Records Case

In May 2023, Bank of Nova Scotia and Scotia Capital USA agreed to a separate CFTC order over business communications and supervision. They admitted failures involving preservation of required communications and supervision of unapproved channels, and the order imposed a $15 million civil penalty. This later matter concerned the records of business communications. The earlier false-cooperation case concerned what the bank supplied and represented during investigations and examinations.

How Much Is a Whistleblower Claim Worth?

The CFTC whistleblower program provides awards totaling 10% to 30% of qualifying sanctions actually collected. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. That is a separate program from the CFTC route for commodities misconduct. We build the commodities whistleblower case with you and bring in the whistleblower lawyers it needs.

You Know What the Desk Left Out

If you can connect a missing trading identifier, an ignored alert or an empty surveillance feed to the account your firm gave investigators, speak with our whistleblower experts. We build the trading and cooperation story with you, bring in commodities fraud whistleblower lawyers who understand order-book evidence, and stay beside you throughout the case.