CFTC Slams Executive At Global Investment Bank For Manipulation and Fraud in Connection with Swaps

The U.S. Commodity Futures Trading Commission (CFTC), has filed a civil enforcement action in the U.S. District Court for the Southern District of New York against Christophe Rivoire, a French national, charging him with engaging in a deceptive scheme to manipulate the pricing of an interest rate swap between a bond issuer and a global investment bank. Rivoire was employed as the Head of North American Rates in the New York office of the bank. 

The US-CFTC has always been stringent in charging fraudulent activities and seemed cooperative for the authentic & prospective businesses.

Recently, the commission slammed Pennsylvanian individual for fraudulent bitcoin scheme by alleging Jon Barry Thompson who is Pennsylvania-based individual for inducing two customers to send roughly $7 million to fund the purchase of bitcoin with misrepresentations that he or the company had the bitcoin in hand and the customers’ money would be safeguarded.

We noticed joint statements by the FinCEN, the SEC and the CFTC essentially saying, ‘If you are one of our regulated entities, and even if you’re not dealing with products that we regulate, but you’re dealing with digital assets, cryptocurrencies, etc., you’ve got to apply the anti-money laundering laws, the Patriot Act, etc., to those. So we were very clear on that point.

At the same time, the former chairman of the CFTC (Commodity Futures Trading Commission) has advocated for the U.S. to establish and circulate a dollar-based digital token and ledger.

For now, “Combating manipulative and deceptive conduct in the swaps markets is crucial to our agency’s mission to preserve market integrity and to protect market participants,” said CFTC Director of Enforcement James McDonald. “We will continue to vigorously pursue all forms of misconduct in the swaps markets, including misconduct related to swaps with bond issuers like that alleged here.”

The complaint alleges that in June and July 2012, Rivoire knew that a bond issuer had negotiated with the bank to price a bond issuance and a related swap using specific screens displaying prices from an interdealer broker firm, including prices for U.S. dollar interest rate basis swaps with a five-year maturity (five-year basis swaps). Rivoire knew that the swap would be more profitable to the bank if lower prices for five-year basis swaps were displayed on the broker screens during the pricing of the bond issuance and the swap.

As further alleged, to effectuate the scheme to maximize the bank’s profit at the issuer’s expense by manipulating the prices of five-year basis swaps, Rivoire enlisted a trader under his supervision and explicitly directed the trader to “push the screen as much as we can before the pricing” of the swap with the issuer. This meant trading in a manner that would result in a lower price for five-year basis swaps. The complaint alleges that the trader followed Rivoire’s direction. As a result of Rivoire’s direction, the trader also enlisted the help of a broker at the interdealer broker firm, including telling the broker in advance that the trader needed to move prices on the screens.  During the pricing of the swap, Rivoire directed the trader when to sell a large quantity of swaps to manipulate the prices on the broker screens.

Without disclosing his directions to the trader or their conduct prior to the final pricing of the swap, Rivoire falsely or misleadingly told the issuer, “Obviously we are not controlling the screen.” The complaint alleges that the scheme had the effect of moving prices on the broker screens and, because the manipulated prices were used to price the swap, it resulted in a more profitable transaction for the bank and a less profitable transaction for the issuer. This conduct deceived the bond issuer and other market participants.