TD Securities (USA) LLC has agreed to pay $15.5 million to settle criminal charges related to a scheme involving fraudulent trading of U.S. Treasuries, the U.S. Department of Justice announced. The securities firm, based in New York, entered into a deferred prosecution agreement (DPA) with the department to resolve one count of wire fraud.
The Justice Department accused TD Securities of placing hundreds of fraudulent orders in the secondary U.S. Treasuries market, intending to deceive participants by manipulating the appearance of supply and demand. The DPA requires the firm to pay approximately $9.4 million in penalties, $4.7 million to compensate victims, and forfeiture amounts.
The charges stem from actions by Jeyakumar Nadarajah, the former head of the TD Securities desk responsible for U.S. Treasuries trading, who was indicted in November 2023 and is awaiting trial. Nadarajah allegedly placed buy and sell orders that he did not intend to execute to profit by providing false information about market activity.
“TD Securities’ unlawful trading undermined confidence in U.S. Treasuries markets,” said Nicole M. Argentieri, Principal Deputy Assistant Attorney General. “The Criminal Division is committed to maintaining the integrity of our financial markets and holding accountable those who engage in deceptive practices.”
As part of the DPA, TD Securities will continue cooperating with the Justice Department’s Fraud Section, implement enhancements to its compliance program, and report any conduct that may breach U.S. securities laws. The Justice Department noted that the firm received credit for cooperating with the investigation and taking remedial actions, including terminating Nadarajah.
Separate settlements were also reached with the Financial Industry Regulatory Authority (FINRA) and the U.S. Securities and Exchange Commission (SEC). TD Securities agreed to pay $6 million to FINRA and approximately $7 million to the SEC, including a civil penalty and disgorgement.
Parallel SEC action: Spoofing scheme charges
The SEC has also charged TD Securities in a related spoofing scheme, accusing the firm of manipulating the U.S. Treasury cash securities market through an illicit trading strategy. The SEC further charged TD Securities with failing to supervise the former head of its U.S. Treasuries trading desk, who allegedly conducted hundreds of illegal trades over a 13-month period.
According to the SEC, between April 2018 and May 2019, the former trader placed non-bona fide orders on one side of the market with no intent to execute them, intending to obtain more favorable execution prices on bona fide orders on the other side. Once the bona fide orders were executed, the non-bona fide orders were canceled. The SEC found that TD Securities lacked adequate controls and failed to investigate the trader’s activities after receiving warnings of potentially irregular trading.
“Manipulative and deceptive trading undermines the integrity of our markets,” said Mark Cave, Associate Director in the SEC’s Division of Enforcement. “Broker-dealers and other firms cannot ignore their employees’ manipulative conduct and must take meaningful steps to detect and prevent it.”
TD Securities consented to the SEC’s order, admitting to violating an antifraud provision of federal securities laws and failing to supervise the trader. The firm agreed to cease and desist from further violations, was censured, and was ordered to pay $400,000 in disgorgement, prejudgment interest, and a $6.5 million civil penalty. The SEC credited $400,000 of disgorgement paid to the DOJ as part of TD Securities’ deferred prosecution agreement.
The U.S. Postal Inspection Service is investigating the case, with prosecution led by the Criminal Division’s Fraud Section. The SEC’s investigation into the spoofing scheme involved its Division of Enforcement, with assistance from the Division of Economic and Risk Analysis.
