Toronto Dominion Bank Faces $20M Penalty Over US Market Manipulation – October 1, 2024

The Toronto-Dominion Bank‘s (TD Quick QuoteT.D. – Free Report) US broker-dealer unit, TD Securities USA, has agreed to pay more than $20 million in a settlement with US authorities over allegations of manipulations of the US Treasuries market.

Allegations Against TD Bank

TD Securities USA admitted to engaging in the spoofing in the US Treasury cash securities market as part of the deal with the US Justice Department. This puts to an end a long-running probe into manipulation, per the court filing.

TD Securities further settled related civil charges from the Securities and Exchange Commission (SEC).

The bank was charged with a failure to supervise the head of its US Treasuries desk. Between April 2018 and May 2019, the employee entered orders that he did not intend to execute, creating an appearance of a false demand, known as spoofing, to trade at better prices.

Per the agreement signed by TD, the prosecution will be suspended as long as the bank remains compliant in accordance with the three-year deal and enhances its compliance measures.

Also, the Department of Justice considered TD’s remedial steps to be adequate, thus, denying the need to appoint an external monitor to oversight compliance.

Fines to be Paid by TD

TD will pay a $12.5 million criminal penalty to settle civil investigations by the SEC and the Financial Industry Regulatory Authority.

Additionally, roughly $9.5 million criminal fine has been levied on the bank as per the agreement. Further, the bank has committed to pay $4.7 million to compensate victims and $1.4 million in forfeiture.

Toronto Dominion Bank’s Other Litigation/Probes

This settlement comes as the bank is reportedly close to reaching a plea deal on separate government charges, alleging that TD’s US retail bank possibly failed to curb money laundering, per a Wall Street Journal report last week.

Also, last month, TD agreed to pay a $28 million penalty in response to the Consumer Financial Protection Bureau (CFPB) order concerning credit reporting issues. The bank was accused of mishandling customers’ credit information and failing to make necessary amendments to its practices.

In August, the bank announced an additional provision of $2.6 billion in its fiscal third-quarter results to meet the estimated cost of $3 billion for compliance failures regarding anti-money laundering (AML) practices.

Last year, after Toronto-Dominion Bank’s landmark $13.4 billion deal to acquire First Horizon collapsed, the Canadian lender started receiving inquiries from the US Department of Justice, financial regulators and the Treasury Department regarding its AML practices.

In 2020, the bank faced a $122 million fine by the CFPB post an investigation revealing that it deceptively marketed a debit card advance service as free while levying fees on overdraft transactions.

TD’s Zacks Rank & Price Performance

Year to date, shares of Toronto Dominion Bank have lost 2.1% against the industry’s growth of 11.7%.

Image Source: Zacks Investment Research

Currently, TD carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Legal Issues Faced by Other Finance Firms

Last month, Wells Fargo & Company (WFC Quick QuoteWFC – Free Report) faced a new class-action lawsuit, where it has been accused of underpaying interest to clients participating in its cash sweep program.

Sweep programs were created to allow banks and brokers to put their customers’ uninvested cash to work. They move excess client cash balances overnight into a money market fund or another higher-yielding product offered by a bank or affiliate bank.

According to the lawsuit, Wells Fargo paid customers in cash sweep accounts just 0.15% interest for most of 2023, while short-term US Treasury Bills yielded around 5.25%, a 36-fold difference. The plaintiffs further alleged that some account holders were paid as little as 0.02% interest on their cash sweep account balances.

Similarly, a proposed order was filed by the US CFPB against Navient Corporation (NAVI Quick QuoteNAVI – Free Report), according to which the student loan servicer will be permanently banned from servicing federal direct loans and directly servicing or acquiring most loans under the Federal Family Education Loan Program.

NAVI will have to pay $120 million for years of student lending failures, which includes $100 million in restitution and a $20 million civil penalty.