Skip to main content

The Globe and Mail

Court rejects RBC’s motion concerning ‘wash trades’

A Royal Bank of Canada sign is seen in downtown Toronto.

MARK BLINCH/REUTERS

Royal Bank of Canada, accused of orchestrating a series of improper transactions in the United States known as "wash trades," has lost an attempt to have key allegations against the bank thrown out.

A New York judge has refused the bank's request to dismiss accusations that it tried to mislead regulators when it sought permission to execute the trades. The move is a potential blow to RBC, which denies it did anything wrong and is fighting the charges.

Canada's largest bank was accused in April of engaging in "hundreds of millions of dollars" of trades in which the bank exchanged futures with various arms of its own operations. The U.S. Commodity Futures Trading Commission (CFTC) has alleged that those trades – known as wash trades – were designed to gain a tax advantage in Canada and ran afoul of trading rules.

Story continues below advertisement

However, RBC maintains that it received clearance from U.S. regulators to conduct those transactions, starting in 2005. RBC argues in court documents that regulators raised no issue with the transactions at the time when the bank sought permission.

But in an amended complaint filed last month in U.S. District Court in New York, the CFTC argues that "senior RBC personnel acting on RBC's behalf willfully falsified, concealed or covered up" facts about the trades when discussing them with regulators.

In particular, the CFTC argues that e-mails between senior RBC officials in late 2005, including the bank's general counsel for the capital markets division and another senior manager, whose name is not given, show the bank was misleading regulators when it sought permission.

Court documents quote a senior RBC manager telling colleagues in an e-mail that a proposed letter to regulators discussing the transactions "misleads as to our effort to engage other parties" on the trades now in question. The CFTC has put that e-mail forward as evidence the bank was not forthcoming.

In recent court filings, RBC asked for the new allegations to be removed, arguing that the bank disclosed its trading strategy fully to regulators in 2005, and that the evidence is not new.

"The amended complaint seeks to create the false impression that the CFTC recently discovered for the first time, through its investigation, that RBC had for several years been engaging in 'a wash trading scheme of massive proportion' that involved 'fictitious sales' and 'hundreds of millions of dollars worth' of unlawful ... futures trading with its own affiliated entities," RBC states in the court documents.

"Nothing could be further from the truth... this case concerns four trading strategies that were fully disclosed to ... the CFTC seven years ago." The bank argues that the CFTC case is a reversal of the regulator's original position on the trades back in 2005.

Story continues below advertisement

However, a judge overseeing the case refused to grant RBC its wish to remove the new allegations concerning the correspondence. The judge said the evidence, such as e-mails between bank officials, is relevant to the primary allegations in the wash-trading case and cannot be thrown out.

RBC has decided not to settle with the CFTC over the allegations and is planning to take the matter to court, should the case proceed that far. The case is set for a status conference between the parties on Friday. No hearing date has been set.

Report an error Licensing Options
About the Author
Senior Writer

Grant Robertson is an award-winning journalist who has been recognized for investigative journalism, sports writing and business reporting. More

Comments

The Globe invites you to share your views. Please stay on topic and be respectful to everyone. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.

We’ve made some technical updates to our commenting software. If you are experiencing any issues posting comments, simply log out and log back in.

Discussion loading… ✨

Combined Shape Created with Sketch.

Combined Shape Created with Sketch.

Thank you!

You are now subscribed to the newsletter at

You can unsubscribe from this newsletter or Globe promotions at any time by clicking the link at the bottom of the newsletter, or by emailing us at privacy@globeandmail.com.