DOJ Charges Three Traders with Spoofing

Spoofing is a form of market manipulation in the commodity markets in which the trader bids or places orders with no intent of executing them. Later they are cancelled. The practice can distort the pricing in the markets and cause injury to other traders who are deceived. The Dodd-Frank Act, in view of this, gave the CFTC additional enforcement authority in this area. Since then the agency, at times in conjunction with the DOJ, has brought “spoofing cases.” The most recent centers on three traders and two markets.

Charged in the actions are three traders from a New York based financial services firm: Yuchum Mao, a citizen of the Peoples Republic of China; Kamaldeep Gandhi, a resident of Chicago; and Krishna Mohan of New York.

The indictment as to Mr. Mao alleges that he was the co-head of a trading team at an unidentified Trading Firm working in Chicago and New York. Over a three year period, beginning in early 2012, Mr. Mao and others are alleged to have conspired to mislead the markets for E-Minni S&P 500 and E-Minni NASDAQ 100 futures contracts traded on the Chicago Mercantile Exchange or CME. Mr. Mao and others also conspired to deceive market participants for the E-Mini Dow futures contracts traded on the Chicago Board of Trade or CBOT, according to the charges.

The indictment alleges that the conspirators placed thousands of false trades that they did not intend to execute. The purpose was to create the false and misleading appearance of increased supply or demand. Those participating in the markets at the time these orders were placed suffered losses of over $60 million. The traders placed the orders for their personal benefit.

A criminal information as to Mr. Gandhi alleges in count one that he conspired with Defendant Mao and others as to the trading offenses while employed at the Trading Firm. Count two alleges that from about May 2014 through October 2014 Mr. Gandhi, while employed at Second Trading Firm based in Chicago, conspired with others to mislead the markets for E-Mini S&P 500 futures contracts on the CME. He agreed, according to the charges, to place spoof orders in those contracts in order to create the false appearance of increased supply or demand. Mr. Gandhi has agreed to plead guilty to the charges in the information. U.S. v. Gandhi, No. 4:18-cr-00609 (S.D. Tx. Filed Oct. 11, 2018). Mr. Gandhi was also named in a civil action by the CFTC and is cooperating. In the Matter of Kamaldeep Gandhi, CFTC Docket No. 19-01 (Oct. 11, 2018).

Mr. Mao was indicted on one count of conspiracy to commit commodities fraud, two counts of commodities fraud and two counts of spoofing. U.S. v. Mao, No. 18 cr 606 (S.D. Tx. Filed Oct. 10, 2018). Mr. Mohan was charged in a criminal information with one count of conspiracy to engage in wire fraud, commodities fraud, and spoofing. The charges are pending. U.S. v. Mohan, No. 4:18 – cr – 00610 (S.D. Tx. Filed Oct. 10, 2018).

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