NEW YORK, Sept 26 (Reuters) - The British brokerage TFS-ICAP Ltd and a U.S. affiliate on Wednesday pleaded guilty to securities fraud and agreed to pay a $1.15 million fine related to the reporting of fake trades in foreign exchange currency options, New York Attorney General Barbara Underwood said.
TFS-ICAP also agreed to remove two high-level managers from supervisory roles, hire an independent monitor for two years, and cooperate in Underwood’s ongoing criminal probe.
The company agreed to the misdemeanor plea and related settlement terms to avoid the time, expense and distraction of further litigation, settlement papers show.
In a statement, a spokesman for TFS-ICAP said the plea related to conduct on a single day in 2015 by one broker that the company no longer employs.
He also said TFS-ICAP was pleased to settle, cooperate, and has taken “significant steps” to improve oversight.
The probe began in 2015 under Underwood’s predecessor Eric Schneiderman, and focused on the posting by inter-dealer brokers of bogus foreign exchange trades, bids and offers, a practice often called “spoofing.”
Underwood said that from Jan. 2014 to Dec. 2015, TFS-ICAP brokers “systematically and intentionally” announced fake trades in Latin American foreign exchange options to create a false sense of liquidity and spur more trades, enabling the company to collect additional commissions.
A state investigator said his review of email and other communications revealed that “high managerial agents” at TFS-ICAP had known of and “recklessly tolerated” improper conduct.
Underwood said the U.S. foreign exchange options market was largely unregulated before 2013, but that changed after the Dodd-Frank financial reform law from three years earlier allowed regulators to assume new rulemaking and oversight powers.
Within New York, a 1921 law known as the Martin Act gives Underwood broad power to pursue criminal and civil securities fraud cases without having to prove an intent to defraud.
The attorney general said the U.S. Commodity Futures Trading Commission and U.K. Financial Conduct Authority assisted in the probe.
Schneiderman resigned in May after being accused of physical abuses toward women. He has denied those allegations. (Reporting by Jonathan Stempel in New York)