US Regulator Sues Royal Bank of Canada Over Alleged Wash Sales

The Commodity Futures Trading Commission filed a claim against the Royal Bank of Canada on Monday accusing it of illegally trading stock futures with a pair of subsidiaries to avoid paying taxes. The agency claims that the bank broke numerous US laws through its practice of “washing sales,” thus stemming competition. The trades were conducted on the US futures exchange called OneChicago over a period of almost three years ended in May 2010.

According to the complaint, RBC’s competition-thwarting trades accounted for the bulk of trading on the OneChicago exchange during the period, and constituted a host of violations of US trade laws and regulations. The trades were designed to take advantage of Canadian tax breaks intended for companies with offshore trading accounts. The bank and its subsidiaries would buy and sell stocks, while also trading on the futures of the stocks, thus offsetting the purchases. The claim also alleges that RBC conspired to keep its scheme hidden from the OneChicago exchange and its regulator, the CME Group.

Futures markets are set up to allow investors to explore pricing of various stocks and commodities and shift investment risks. The CTFC claims that RBC’s activities undermined the essential purpose of futures trading while also misleading the exchange into thinking the conduct was legal. A spokesman for RBC steadfastly denied the accusations, claiming that regulators were consulted before each and every trade.