DOJ, CFTC File Series of Criminal And Civil Spoofing Cases
The Department of Justice filed six criminal spoofing cases, its largest criminal futures market case. The Commodity Futures Trading Commission simultaneously announced eight spoofing case, five of which parallel the DOJ actions and three against large, international banks. Previously only three spoofing cases had been filed.
Generally, spoofing involves a practice in which the trader first places large orders in one direction for an instrument with no intention of executing those orders and, after the price moves to an artificial level either up or down drawing in the investing public, places orders for execution in the opposite direction to take advantage of the artificial price. The trader profits; the investing public loses. Each case typically involves hundreds of orders, which in some instances are detailed in charts attached to the court papers. Each criminal case and the parallel civil case is in litigation. The actions involving the banks were filed as settled administrative proceedings.
The parallel civil and criminal cases:
CFTC v. Vorley, Case No. 1:18-cv-00603 (N.D.Ill. Filed Jan. 26, 2018) which names as defendants James Vorley, a resident of the U.K, and Cedrick Chanu, a resident of the U.A.E. The civil complaint charges each defendants with spoofing and engaging in manipulative and deceptive conduct in the precious metals futures markets. The criminal case also alleges spoofing along with wire fraud and commodities fraud involving thousands of trades from 2008 through 2015.
CFTC v. Thakkar, Case No. 1:18-cv-00619 (N.D. Ill. Filed Jan. 28, 2018) names as defendants Jitesh Thakkar and his firm, Edge Financial Technologies, Inc. The civil case alleges spoofing and manipulative and deceptive conduct involving trading in the E-mini S&P futures contract on the CME. Mr. Thakkar is alleged to have created a software program that was used to engage in spoofing for thousands of trades. The program was supposedly designed to automatically prevent spoofed trades from being executed by moving the orders to the back of the line. The criminal case also charges spoofing.
CFTC v. Zhao, Case No. 1:18-cv-00625 (N.D.Ill. Filed Jan 28, 2018) alleges that defendant Jiongsheng Zhao of Australia engaged in spoofing and manipulative conduct. The criminal case is based on the same conduct and also alleges that the trader made certain false statements to the CME.
CFTC v. Flotron, Case No. 3:18-cv-00158 (D. Conn. Filed Jan. 26, 2018) names as a defendant Andre Flotron, a precious metals trader from Switzerland employed at UBS. The civil complaint alleges that the trader engaged in spoofing and manipulative conduct in the precious metals markets. The criminal cases alleges that he conspired with other market participants to engage in spoofing between 2008 and 2013.
CFTC v. Mohan, Case No. 4:18-cv-00260 (S.D. Tx. Filed Jan. 28, 2018) names as a defendant Krishna Mohan of New York City. The civil complaint alleges that the Defendant engaged in spoofing and manipulative conduct with respect to E-mini Dow futures contracts on the CBT and E-mini NASDAQ 100 futures contracts on the CME. The criminal case alleges similar conduct.
Traders Edward Bases and John Pacilio were also charged in a criminal case. The action alleges commodities fraud and spoofing in the precious metals and futures markets. The CFTC did not charge Messrs. Bases and Pacilio.
In addition, the CFTC filed settled administrative proceedings as to three international banks:
In the Matter of HSBC Securities (U.S.A.) Inc., CFTC Docket No. 18-08 (Jan. 29, 2018). The action alleged spoofing in the precious metals markets on the COMEX. To settle the action HSBC agreed to pay a civil monetary penalty of $1.6 million and to the entry of a cease and desist order based on CEA Section 4c regarding spoofing. The firm also agreed to implement and strengthen its training, systems and controls to detect and deter spoofing. The agency acknowledged the bank’s cooperation.
In the Matter of Deutsche Bank AG, CFTC Docket No. 18-06 (Jan. 29, 2018) named as Respondents the bank and Deutsche Bank Securities Inc. The action alleged that Respondents engaged in a manipulative scheme with respect to precious metals futures contracts by using various manual spoofing techniques and by trading in a manner to trigger customer stop-loss orders from February 2008 through September 2014. To resolve the proceedings Respondents agreed to pay a $30 million penalty and to undertake certain remedial relief.
In the Matter of UBS AG, CFTC Docket No. 18-07 (Jan. 29, 2018) alleges that from January 2008 through December 2013 the firm manipulated the price of precious metals futures contracts on the COMEX by using a variety of manual spoofing techniques and trading in such a manner as to trigger customer stop-loss orders. To resolve the proceedings the firm agreed to pay a penalty of $15 million and to undertake certain remedial relief.