Last week, a criminal complaint was filed against Andre Flotron, a former precious metals trader for UBS Investment Bank (click here for background on Mr. Flotron’s LinkedIn site), for engaging in alleged spoofing‑type trading activity from at least July 2008 through at least November 2013 involving precious metals futures contracts listed on the Commodity Exchange, Inc. The complaint was filed in a federal district court in Connecticut.
Mr. Flotron apparently worked for UBS in Stamford, CT from January 2006 through October 2010, and in Zurich, Switzerland from October 2010 through January 2014; he currently resides in Zurich, but was arrested last week in connection with the complaint in New Jersey.
According to the complaint, on multiple occasions during the relevant time, Mr. Flotron along with others placed small-lot orders in gold, silver, platinum or palladium futures contracts on one side of the market close to the prevailing price, and around the same time, placed larger orders on the other side of the market, also close to the prevailing price. The objective of the large order, said the complaint, was to “trick other market participants by injecting materially misleading information into the market that indicated increased supply or demand, but was not genuine…” As soon as at least one lot of his small order was executed, Mr. Flotron would cancel the large order within no more than five seconds, alleged the complaint.
According to the complaint, many of the allegations against Mr. Flotron were based on the testimony of a non-identified subordinate trader—“Trader 1”—who joined Mr. Flotron’s trading operations in Stamford in July 2008, and was trained by Mr. Flotron.
The complaint charged Mr. Flotron specifically with conspiracy, wire fraud, commodities fraud and spoofing, although the provision of law addressing spoofing adopted as part of the Dodd‑Frank Wall Street Reform and Consumer Protection Act was not effective until July 16, 2011—three years after the beginning of Mr. Flotron's purported illegal conduct.
Legal Weeds: Last month, Michael Coscia’s criminal conviction and sentencing for spoofing was unanimously upheld by a three-justice Federal Court of Appeals panel in Chicago. Mr. Coscia was the first person criminally charged under the anti‑spoofing provision of Dodd-Frank. (Click here for background of this matter and another criminal spoofing case in the article “Federal Appeals Court Upholds Conviction and Sentencing of First Person Criminally Charged for Spoofing Under Dodd-Frank Prohibition” in the August 7 edition of Between Bridges.) Some of my Katten colleagues believe that, "[u]nderstood in context, the holding of Coscia is narrow, and preserves courts’ ability to limit prosecutors’ and regulators’ authority to label trading they do not like as 'spoofing'..." (Click here for the details of their analysis in the article, "United States v. Coscia: First Spoofing Conviction Leaves Hard Questions for Another Day" in the September 4, 2017 edition of Securities Regulation & Law Report.)