TD Securities (USA) LLC has agreed to a resolution with the Justice Department to settle criminal charges related to a scheme involving unlawful trading in the U.S. Treasuries secondary market. The New York-based securities firm entered into a deferred prosecution agreement (DPA) and will pay over $15.5 million in penalties, forfeiture, and victim compensation.

The company is charged with one count of wire fraud as per the criminal information filed in the District of New Jersey. Under the DPA terms, TD Securities will pay approximately $9.4 million as a criminal fine and about $4.7 million for victim compensation through a claims administration process.

Jeyakumar Nadarajah, former head of TD Securities' U.S. Treasuries trading desk, was indicted on November 7, 2023, in connection with this scheme and is awaiting trial.

"TD Securities placed hundreds of orders to buy and sell U.S. Treasuries that it never intended to execute," stated Principal Deputy Assistant Attorney General Nicole M. Argentieri from the Justice Department’s Criminal Division. "Such efforts to profit through unlawful trading undermine public confidence in U.S. Treasuries markets."

Inspector Eric Shen from the U.S. Postal Inspection Service's Criminal Investigations Group remarked on the breach of trust: "The USPIS’ DOJ Mail Fraud team found there was a blatant violation of that trust... These charges send a clear message that such deceptive practices will not be tolerated."

Court documents reveal that Nadarajah engaged in fraudulent activities by placing orders he intended to cancel before execution, thus misleading other market participants about genuine supply and demand for U.S. Treasuries.

As part of the DPA, TD Securities and its parent company TD Group US Holdings LLC have agreed to cooperate with ongoing or future investigations by reporting any evidence or allegations of conduct violating anti-fraud laws and enhancing their compliance program where necessary.

The resolution factors included the seriousness of placing fraudulent spoof orders amounting to tens of billions of dollars without voluntarily disclosing these actions to authorities.

In addition to cooperating with investigations, TD Securities received credit for terminating Nadarajah and improving its compliance function.

Separately, the Financial Industry Regulatory Authority fined TD Securities approximately $6 million in a related proceeding. The SEC also reached a settlement requiring TD Securities to pay around $7 million including civil penalties, disgorgement, and prejudgment interest.

USPIS is investigating this case while Trial Attorney John J. Liolos from the Criminal Division’s Fraud Section is prosecuting it with assistance from former Deputy Assistant Chief Scott Armstrong.