Department of Justice - Former Wall Street Precious Metal Traders Sentenced for Wire Fraud

The US Department of Justice (DOJ) has successfully prosecuted two ex-bankers for Spoofing on CME Nymex and COMEX using precious metals futures. They will each serve one year in Federal prison following the convictions. The charges included teaching other traders “how to engage in the practice of spoofing” although no further details were provided as to how this was achieved (or proven) other than that they induced other market participants to trade at prices, quantities, and times that they otherwise would not have traded. The FBI were responsible for investigating the case.

These convictions follow on a spate of aggressive criminal enforcement actions by the US DOJ led by Deputy Chief Avi Perry who, for a number of years, has made the abuse of commodity market a central focus for his team. He is not alone however. In December, the DOJ in Illinois (where the CME is located) secured this prosecution for similar actions.

RegTrail Insight

Energy and commodity firms active in US markets must be aware of the regulatory authority’s focus on Spoofing and their ability to secure criminal convictions on this specific type of behaviour. It is an abusive behaviour which is relatively easy to systematically identify from an order and trade pattern perspective, presumably also making it easy to demonstrate and prove to a jury.

Firms must have effective detection capabilities in place for this scenario and traders must be educated about the heightened risks around Spoofing. With the increased prevalence of algorithmic trading (“algos”) in energy and commodity markets, firms should pay extra attention to the nature of algos being deployed on US venues in the absence of MiFID RTS 6-style regulation and guidance, particularly those algos that might have a propensity to act both sides of the order book in a manner that could be considered abusive.