Jitesh Thakkar and his company, Edge Financial Technologies, Inc., will present a motion for summary judgment on September 11 in the enforcement action by the Commodity Futures Trading Commission against them for their alleged role in writing software used by the purported “Flash Crash” spoofer, Navinder Sarao.
Mr. Thakkar and his company were sued by the CFTC in January 2018. At the same time, Mr. Thakkar was also named in a criminal complaint related to the same conduct. (Click here for more details regarding the criminal and civil complaints involving Mr. Thakkar in the article “CFTC Names Four Banking Organization Companies, a Trading Software Design Company and Six Individuals in Spoofing-Related Cases; the Same Six Individuals Criminally Charged Plus Two More” in the February 4, 2018 edition of Bridging the Week.)
Subsequently, after criminal charges against Mr. Thakkar for conspiracy to commit spoofing were dismissed by the judge presiding over Mr. Thakkar’s criminal trial, the same judge declared a mistrial after the jury failed to reach a unanimous verdict on the charge of aiding and abetting spoofing. The Department of Justice declined to retry Mr. Thakkar. (Click here for background regarding Mr. Thakkar’s criminal proceedings in the article “Department Declines to Retry Alleged Programmer for Flash Crash Spoofer” in the April 29, 2019 edition of Bridging the Week.)
Following these events, the CFTC determined to proceed with its civil action against defendants. In a memorandum filed in support of their motion, defendants argued that, as established at Mr. Thakkar’s criminal trial, they “did not know Sarao would use the computer program Edge Financial developed to engage in illegal trading, and [defendants] did not intend to further Sarao’s illegal trading.” Defendants claimed that after conducting a joint investigation with the DOJ prior to Mr. Thakkar’s criminal trial, the CFTC now proposes to launch a second investigation through civil discovery; this they claim is “a waste of the Court, the government and the Defendants’ resources.”
My View: As I wrote at the time of the DoJ’s decision not to retry Mr. Thakkar,
Although the standard of proof the CFTC would have to satisfy to gain a judgment against Mr. Thakkar in its enforcement action is less than what the DoJ required in its criminal case (a preponderance of the evidence vs. beyond reasonable doubt), the Commission should exercise its discretion and voluntarily drop its enforcement action against Mr. Thakkar. Unless the CFTC has a smoking gun it did not make available to the DoJ, it does not appear that there is compelling evidence that Mr. Thakkar was aware that software developed by his firm would be used by Mr. Sarao for illicit purposes.
It should not be case that a software developer or provider can be held liable for the illicit use of the software absent express knowledge of the user’s illicit intent. Simply being aware that that software could potentially be used for an illegal purpose should not be enough to warrant prosecution by the CFTC let alone by the DoJ. Otherwise the potential for regulatory liability will chill if not freeze trading software development.
Nothing has transpired since April 2019 that changes my view on what should be the outcome of this CFTC action.