The United States Attorney for the Northern District of Illinois opposed Michael Coscia’s January 2019 request for a new trial to reconsider whether he engaged in spoofing in violation of the prohibition against such conduct under the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. Mr. Coscia was the first person charged, convicted and sentenced for spoofing under Dodd-Frank.

Mr. Coscia argued that a retrial was warranted because, in his initial hearing, the government had claimed that his pattern of trading was “unique and extraordinary.” However, said Mr. Coscia, the trading data utilized by the Department of Justice during the trial to support the claim was for a “narrow, incomplete set of dates, futures and traders.” Only after his trial, stated Mr. Coscia, did CME Group and the Intercontinental Exchange produce broader sets of data that showed that the ratio of his cancelled orders to executions was not unusual and that his “trading activity was the same as hundreds of other traders.”

The US Attorney observed, however, that Mr. Coscia only requested the trading data after the conclusion of his first trial and has not shown “that this information was previously unavailable through pretrial due diligence.” Moreover, Mr. Coscia raised the same argument during his sentencing and it was rejected, argued the US Attorney.

The US Attorney also alleged that Mr. Coscia proposed to use the new data solely to impeach certain trial exhibits, and new evidence to impeach trial evidence is insufficient to justify a new trial.

Mr. Coscia was sentenced to three years’ imprisonment for spoofing and commodity fraud following a criminal trial in 2015 for three months of trading activity in 2011; he previously settled civil charges related to the same matter with the Commodity Futures Trading Commission, the Financial Conduct Authority, and certain CME Group exchanges. (Click here for background in the article “Michael Coscia Sentenced to Three Years’ Imprisonment for Spoofing and Commodity Fraud” in the July 17, 2016 edition of Bridging the Week.)

Separately, the Futures Industry Association filed an additional friend of the court brief in connection with the pending criminal case against James Vorley and Cedric Chanu charging them with wire fraud in connection with purported spoofing activity. As the US Chamber of Commerce, the Bank Policy Institute and the Securities Industry and Financial Markets Association stated in their friend of the court brief filed on February 9, 2019, FIA argued that prosecuting defendants for wire fraud (and not spoofing) raised issues of concern to the business community, because such action implied that orders entered without an intent of execution for any reason constituted fraudulent statements to the marketplace. However, observed FIA, such a view would challenge “the vitality of the established legal precept” that market participants have no obligation to disclose any information in connection with open orders including their intentions regarding such orders.

According to FIA, criminalization of “a market participant’s failure to disclose trading intentions opens the door for arbitrary prosecutions and vexatious private claims.” (Click here for background regarding Mr. Vorley’s and Mr. Chanu’s criminal prosecution as well as the prior amicus brief filed by three industry organizations in the article “Metals Trader Settles CFTC Action for Purported Spoofing After Prevailing in Related Criminal Action” in the February 17, 2019 edition of Bridging the Week.)

Compliance Weeds: As I have observed previously, although most focus has been directed on Dodd-Frank’s and exchanges’ prohibition against placing an order without the intent at the time of order placement for the order to be executed (e.g., “spoofing”), market participants must pay equal attention to exchanges’ prohibition against persons entering or causing the entry of order messages with the intent to disrupt or with reckless disregard for the consequences of such messages on the orderly trading of a market. (Click here to access CME Group Rule 575.D. and here for ICE Futures U.S. Rule 4.02(l)(1)(C) and (D).) Exchanges have used this prohibition to prosecute traders for:

  • purportedly misusing user-defined spreads (click here to access the article “CME Group Resolves Two Disciplinary Actions Alleging Market Disruption” in the October 1, 2017 edition of Bridging the Week);
  • trading in an alleged disruptive fashion at a contract’s termination (click here to access the article “Two Firms Settle With CME Group Exchanges for Not Supervising Employees Who Allegedly Engaged in Disruptive Trading Practices” in the September 10, 2017 edition of Bridging the Week); and
  • supposedly testing the liquidity of a market (click here to access the article “CME Group Exchanges Charge One Trader With Impermissibly Entering Orders To Test Gold Market Latency and Another With Failure to Timely Complete Delivery” in the June 4, 2017 edition of Bridging the Week).

CME Group has also brought a disciplinary action against a non-US brokerage entity for liquidating customers’ orders following non-payment of margin calls without considering the impact of the liquidation on market prices. (Click here to access the article “CME Group Settles Disciplinary Action Alleging That Automatic Liquidation of Under-Margined Customers’ Positions By Non-US Futures Broker Constituted Disruptive Trading” in the March 20, 2017 edition of Between Bridges.)