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Charlotte federal prosecutors investigate Bank of America swaps desk

Federal prosecutors in Charlotte have led an investigation into whether Bank of America improperly traded securities before executing large orders for clients, according to a document filed by an industry self-regulator.

A report from the Financial Industry Regulatory Authority discloses that the U.S. Attorney’s Office for the Western District of North Carolina has investigated whether the Charlotte bank’s swaps desk executed futures trades before putting in large orders from its clients. Bank of America’s swaps traders are largely based in New York.

The disclosure is similar to an FBI bulletin circulated to major banks that said investigators had information on traders at a U.S. bank “front-running” government-backed mortgage giants Fannie Mae and Freddie Mac. Reuters reported the content of the bulletin, which did not identify the bank.

Front-running is a practice that entails a banker making a trade ahead of a large order, allowing the banker to capitalize on market movements the large trade will make. Front-running is considered unethical and is often illegal.

The bulletin said traders used hand signals and special ring tones to alert others when a large order was about to be placed. They could then take advantage of the impending order in their own trades.

The Commodities Futures Trading Commission has also investigated, the report from the Financial Industry Regulatory Authority states.

It’s not clear whether the investigation by federal prosecutors in Charlotte is ongoing. The U.S. Attorney’s Office declined to comment. Bank of America spokesman Bill Halldin also declined to comment.

Dunn: 704-358-5235; Twitter: @andrew_dunn
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