BCS Barclays PLC

Federal prosecutors and the top U.S. commodities regulator have asked banks to turn over information in connection with a broad probe into whether their traders rigged auctions on government debt, according to people familiar with the matter.

Banks are in the process of providing details to prosecutors at the Fraud Section at the Justice Department, as well as investigators at the Commodity Futures Trading Commission, the people said.

The two agencies sent the requests this summer to many of the banks that serve as primary dealers, which are authorized to deal directly with the government on the sale of Treasury bonds, the people said. The list of primary dealers includes Goldman Sachs Group Inc., as well as other Wall Street banks and many of their biggest European and Asian counterparts.

There are 22 primary dealers, but it isn't clear whether all of those firms received the requests.

Goldman appeared to reference the inquiries Tuesday in a regulatory filing. The firm noted that regulators were scrutinizing activities related to the offering and auction of various securities, as well as "when-issued trading," a classification for bets dealers and traders place on the interest rate that will be offered by the government debt issued at auction a week later. The disclosures hadn't appeared in Goldman's previous quarterly filings. A representative for Goldman declined to comment.

The requests from the CFTC and Justice Department's Fraud Section hasn't been previously reported, nor has the fact that banks have begun to turn over information at the request of the two agencies.

In August, New York's Department of Financial Services, the state's banking regulator, sent its own information requests to nine large banks within its jurisdiction, The Wall Street Journal has reported.

The requests went out to Bank of Nova Scotia, Bank of Montreal, Barclays PLC, BNP Paribas SA, Credit Suisse Group AG, Deutsche Bank AG, Goldman, Mizuho Financial Group Inc. and Socié té Gé né rale SA, said a person familiar with the matter. Representatives for Barclays, Credit Suisse, BNP, Deutsche and Mizuho declined to comment, and the others didn't respond to requests for comment.

The New York regulator asked banks to respond with troves of information about their orders, trading and pricing in Treasury sales, said the person. The agency also asked for details of any communications between traders at different banks related to the Treasury auctions.

Authorities are looking into whether bank traders worked together to bolster their own profits by depressing prices at U.S. government debt auctions. It isn't known what specific instances of possible manipulation are being examined by regulators.

The requests for information from federal and state authorities aren't an indication of any suspected wrongdoing by the banks that were contacted, according to people familiar with the matter.

The $12.8 trillion Treasury market has emerged as the latest focus for law-enforcement officials, regulators and plaintiffs' attorneys looking for evidence of misconduct by Wall Street banks.

Many of the world's largest banks have rung up billions of dollars of fines and settlements in the wake of accusations they manipulated interest-rate benchmarks and foreign-exchange markets.

The Treasury market is arguably the deepest in the world and the baseline for pricing a wide range of other assets. Treasury prices influence rates on everything from mortgages to car loans, and they act as a barometer of economic health. During market routs, investors flock to Treasurys because they are typically bought and sold more easily than other securities.

The involvement of the CFTC, which oversees the futures market, suggests investigators are examining futures trading that occurs ahead of and around Treasury auctions. It isn't clear why the Justice Department's Fraud Section is taking the lead on the inquiry, but indicates prosecutors are focused on allegations of manipulation, rather than collusion, which would be investigated by the antitrust division of the department.

Separately, there are about three dozen private lawsuits into potential collusion by banks in the Treasury market, which are also at a nascent stage. One led by the Cleveland Bakers and Teamsters Pension Fund accuses dealers of conspiring to lower Treasury prices, and turning around and selling those same bonds into the secondary market at higher prices, "reaping substantial profits."

According to the Cleveland complaint, data from Treasury auctions analyzed by plaintiff lawyers indicated that prices on the newly issued bonds were depressed, and their yields inflated, in 69% of the auctions studied by about 0.91 percentage point. Bond yields move inversely to prices.

"This repeated bias cannot be explained as a result of random chance; instead, the only plausible explanation is that defendants coordinated artificially to influence the results of the auctions," according to the complaint.

There will be a Dec. 3 hearing in a New Orleans federal court to decide whether the private lawsuits will be consolidated in New York, Chicago or elsewhere.

Write to Aruna Viswanatha at Aruna.Viswanatha@wsj.com, Justin Baer at justin.baer@wsj.com and Katy Burne at katy.burne@wsj.com

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(END) Dow Jones Newswires

November 03, 2015 19:45 ET (00:45 GMT)

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