U.S. regulators accuse Royal Bank of using sham trades

Royal Bank is calling “absurd” a lawsuit filed against it by U.S. regulators that alleges it engaged in hundreds of millions of dollars in sham futures trades to reap tax benefits on its holdings of company stocks.

The Commodity Futures Trading Commission lawsuit filed Monday against Royal (TSX:RY) says the bank also concealed the true nature of the trades and made false statements to a futures trading exchange.

Royal said in a statement it consulted stock exchanges and the commission itself for guidance when the trades were made and got no objection from either.

“Given no objection to the trading activity by either the exchange or the CFTC in 2005, it is absurd to now claim these trades were either fictitious or wash sales,” it said.

“This lawsuit is meritless and we will rigorously defend ourselves against such baseless allegations.”

Royal Bank said it “proactively contacted the exchange to seek its guidance” before making any trades, a move it claims was fully documented, transparent and reviewed by the CFTC.

“RBC’s trading was permissible in 2005, and it is permissible today under the CFTC’s published guidance,” the bank added.

The agency said it is the largest case it has brought against so-called wash trades, which cancel each other out.

The CFTC alleged that Royal Bank made the trades in stock futures contracts from 2007 to 2010 with two foreign subsidiaries.

— With files from The Associated Press

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