With the scheduled criminal trial of Michael Coscia for alleged spoofing scheduled to commence two weeks from today on October 26, 2015, the US Attorney’s Office in Chicago indicated its intent to narrow the theory of its case, while both parties made motions to prevent the other side from introducing certain evidence during trial and arguments they claimed might inflame and distract the jury.
Mr. Coscia, who was the subject of and settled civil enforcement actions brought by the Commodity Futures Trading Commission, CME Group exchanges and the Financial Conduct Authority for alleged spoofing activities involving futures traded on CME Group exchanges and ICE Futures Europe from August through October 2011, was indicted in Chicago in October 2014 for some of the same transactions.
Although Mr. Coscia had been charged in his indictment with engaging in conduct that “is of the character or known to the trade as spoofing” – paralleling the relevant provision of law — the US Attorney’s Office advised the court hearing the matter that it only intends to prove that each relevant transaction is spoofing. According to the US Attorney’s Office,
[t]his decision will streamline the trial and avoid the need for any litigation as to whether defendant’s trades are ‘of the character’ of spoofing or were ‘commonly known in the industry’ as spoofing. Evidence on these matters, including the industry’s understanding of the term "spoofing," will be irrelevant.
The US Attorney’s Office also requested the court to bar defendant from introducing evidence or arguments related to possible vagueness of the relevant spoofing law, or regulations or interpretations of the CFTC, FCA, CME Group or ICE related to spoofing. “This Court will define the law and the sole issue at trial is whether the defendant committed a crime, not whether his action violated a CFTC regulation or a CME Group rule,” argued the US Attorney’s Office in its motion papers.
Mr. Coscia similarly made a motion to bar the government from introducing evidence or arguments related to regulatory investigations into defendant’s conduct and his settlements; alleged market harm or disruption that is unrelated to Mr. Coscia’s trading activities; any reference to manipulation; lay witness descriptions of defendant’s trading as “spoofing;” and complaints by non-testifying market participants regarding Mr. Coscia’s trading.
Mr. Coscia settled his civil enforcement actions for an aggregate fine in excess of US $3 million, disgorgement of US $1.3 million of trading profits and trading suspensions. (Click here for further background regarding Mr. Coscia’s indictment in the article “NJ-Based Trader Previously Sanctioned by UK FCA, CFTC and CME Indicted in Chicago for Same Spoofing Offenses” in the October 5, 2014 edition of Bridging the Week.)
Legal Weeds: The US Attorney’s strategy in this case is interesting. Under the plain language of the relevant statute, “spoofing” is the “bidding or offering with the intent to cancel the bid or offer before execution.” However, as the CFTC said in its interpretive guidance regarding this provision (click here to access), spoofing may be defined a certain precise way in the statute, but the conduct defined as spoofing may not always be prohibited conduct. According to the CFTC, “a spoofing violation will not occur when the person’s intent when cancelling a bid or offer before execution was to cancel such bid or offer as part of a legitimate, good-faith attempt to consummate a trade.” The CFTC appears to recognize there is a distinction between spoofing the law and spoofing the lore: “[a]s with other intent-based violations, the Commission intends to distinguish between legitimate trading and ‘spoofing’ by evaluating all of the facts and circumstances of each particular case, including a person’s trading practices and patterns.” This interpretation is consistent with guidance by CME Group and ICE Futures U.S. (Click here for background on CME Group’s interpretation of its Rule 575 and here for background on ICE Futures U.S. interpretation if its Rule 4.02(l).) In other words, the statute may endeavor to define spoofing, but that’s not what spoofing — the prohibited conduct — always is.