The Value of Cooperation

Market manipulation has long been the focus of the SEC, the CFTC and other regulators. Spoofing, a particular form of market manipulation, is now a focus of the CFTC and DOJ following amendments to the CEA under Dodd-Frank. There Congress added a specific statutory provision prohibiting the trading technique. Prior that statutory amendment few spoofing cases were brought.

While it seems clear that spoofing is prohibited by the kind of general antifraud provisions contained in the CEA – a point well illustrated by the SEC’s use of Section 10(b) in recent spoofing cases – one reason for not bringing spoofing actions prior to Dodd-Frank may have been the difficulty of proof. Complex market manipulations can be difficult to prove, particularly for regulators with limited budgets. While Dodd-Frank simplified the proof issue for the CFTC, the true driver of its most recent case in this area appears to have been cooperation. In the Matter of Mirae Asset Davwoo Co., Ltd., CFYC Docket No. 30-11 (Jan. 13, 2020).

The case

Respondent Mirae Asset acquired Daewoo Securities after the trading involved here. Daewoo was a brokerage and investment firm based in the Republic of Kora which engaged in proprietary futures contract trading in the U.S.

During the period December 2014 to April 2016 Trader A, based in the Daewoo office in Seoul, Korea office, traded futures contract, including the E-Mini contract on the CME. The trader used a number of strategies; at least one involved spoofing. To employ this strategy the trader used three steps:

1) Disproportionally large orders were entered on one side of the market. These orders were intended to give a misleading impression of market liquidity. The trader intended from the beginning to cancel these orders.

2) A small order was subsequently entered on the opposite side of the market. This order benefitted from the increased activity on the opposite side of the market created by the initial order.

3) Immediately after the second order was executed the trader cancelled the initial orders.

In this case by the time Enforcement’s inquiry began Daewoo had been acquired by Mirae Asset. That firm immediately began cooperating with the enforcement investigation. The firm retained U.S. counsel to conduct an internal investigation. Mirae also retained an expert to analyze the trading activity. The results from the expedited investigation were given to the CFTC’s Division of Enforcement.

This action against the firm followed. The Order alleges violations of Section 4c(a)(5)(C) of the Act. That section makes it unlawful to engage in any trading or conduct that is known as spoofing. Since the trader engaged in that conduct Mirae, as the subsequent acquirer of Daewoo Securities, is liable for that activity, according to the Order.

To resolve the proceedings Respondent consented to the entry of a cease and desist order based on the Section cited in the Order. The firm agreed to pay a civil monetary penalty of $700,000. The amount of the penalty was reduced by an unspecified amount based on the cooperation of Respondent.


Cooperation resulted in a reduced penalty, according to the CFTC. That is because the cooperation expedited the proceeding. That is key for agencies with scarce resources.

For the company, the question of cooperation is not so much one of resources but of value – what is the cooperation worth? That point is not addressed here. Indeed, U.S. regulators typically do not address the point. That contrasts sharply with the practice in other parts of the world the amount of the discount is disclosed. At a time when many U.S. regulators are seeking cooperation to facilitate their investigations, it may be time to at least try the approach used by regulators abroad.


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