Last week, the Commodity Futures Trading Commission commenced a lawsuit in federal court in New York against Heet Khara and Nasim Salim for alleged spoofing activities on the Commodity Exchange, Inc. from February through at least April 28, 2015. The CFTC claimed the respondents engaged in disruptive trading involving gold and silver futures contracts.
Previously, both respondents were summarily suspended by the CME Group from accessing all its marketplaces for 60 days for the same conduct. (Click here for details in “CME Group Summarily Suspends Trading Privileges of Two Traders Without Hearing for Alleged Spoofing and Non-Cooperation” in the May 3, 2015 edition of Bridging the Week.)
On at least two occasions, alleged the CFTC, Mr. Khara placed multiple small quantity layered orders on one side of the market to help effectuate an execution of a few small quantity orders he previously placed on the opposite side of the market that he desired to be filled. Once some of the desired orders were filled, Mr. Khara cancelled the multiple layered orders on the opposite side of the market.
According to the CFTC, Mr. Khara initially engaged in his disruptive trading practices through an account at an unnamed futures commission merchant (so-called “FCM A”). Mr. Khara’s account was introduced to FCM A by Zonyx DMCC, a Dubai-based unregistered introducing broker that Mr. Salim heads and for which he serves as authorized trader.
After CME Group alerted FCM A on February 25, 2015, regarding certain of Mr. Khara’s alleged disruptive trades and FCM A suspended Mr. Khara’s direct market access, Mr. Khara opened a second account at another unnamed FCM (so-called “FCM B”). Mr. Salim already maintained an account at FCM B.
Afterwards, alleged the CFTC, both Mr. Khara and Mr. Salim individually engaged in similar disruptive trading practices through accounts at FCM B, in the style of Mr. Khara’s prior trading at FCM A. In addition, Mr. Khara and Mr. Salim sometimes coordinated their disruptive trading activities through accounts at FCM B, claimed the CFTC.
In connection with this matter, the CFTC charged Mr. Khara and Mr. Salim with disruptive trading under federal law and CFTC rules, and simultaneously obtained a freeze against all assets of the respondents. The CFTC seeks an injunction, disgorgement of profits and a fine.
Legal Weeds: Unlike in the CFTC’s recently publicized lawsuit against Navinder Sarao for contributing to the May 2010 “Flash Crash” through alleged spoofing activities, the CFTC only alleges against Mr. Khara and Mr. Salim violations of the express prohibition against disruptive trading under federal law and CFTC rules. It does not also allege, as in the CFTC’s case against Mr. Sarao, violations of the prohibitions against manipulation, attempted manipulation and conduct which constitutes a deceptive device or contrivance. (Click here for details in “London-Based Futures Trader Arrested, Sued by CFTC and Criminally Charged With Contributing to the May 2010 ‘Flash Crash’ Through Spoofing” in the April 22, 2015 edition of Between Bridges.) Superficially, there appears to be no material differences in the types of conduct at issue in the two cases, other than Mr. Khara’s and Mr. Salim’s allegedly wrongful conduct occurring during a much shorter time period.