Andre Flotron, the former UBS trader who last year was indicted for conspiracy to defraud in connection with purported spoofing‑type trading activity involving precious metals futures contracts listed on the Commodity Exchange, Inc., was found not guilty by a jury hearing his case in Connecticut.
Mr. Flotron, who allegedly engaged in the conduct that was subject to his indictment from July 2008 through at least November 2013, most recently resided in Switzerland. He was arrested and criminally charged in a federal court in Connecticut after he came to the United States to visit his girlfriend in September 2017.
(Click here for background regarding Mr. Flotron’s arrest and indictment in the article “Spoofing Case Filed in Connecticut Against Overseas-Based Precious Metals Trader” in the September 17, 2017 edition of Bridging the Week.)
Subsequently, the Department of Justice attempted to dismiss its own case against Mr. Flotron in Connecticut in order to refile it in Illinois to include other charges. The court held that the DoJ’s motion would unfairly deprive Mr. Flotron of a speedy trial and was in bad faith. According to the court, “The Government’s real wish [in prevailing on the motion] is to decorate its broad conspiracy charges with baubles of substantive charges that serve little or no function other than to run up defendant’s sentencing exposure beyond the 25 years imprisonment he already faces if convicted on the conspiracy charges alone.” (Click here for a copy of the relevant court decision.) Mr. Flotron remains the defendant in an enforcement action by the Commodity Futures Trading Commission related to the same alleged trading conducted filed in January 2018. (Click here for a copy of the relevant complaint.)
Unrelatedly, Mark Johnson, HSBC Bank plc’s former head of foreign exchange cash trading, was sentenced to 24 months’ imprisonment and subject to other penalties, following his conviction for front-running a customer’s trading in British Pounds in November and December 2011. Mr. Johnson was criminally charged for his conduct by the US Attorney’s office in Brooklyn, New York, in July 2016, and was found guilty of eight counts of wire fraud by a federal jury in October 2017. (Click here for background in the article “Global Head of FX Cash-Trading Desk of Global Investment Bank Arrested for Front-Running” in the July 24, 2016 edition of Bridging the Week.)
My View: It is unclear to me what can be read into the jury verdict regarding Mr. Flotron except that intent is easier to prove in a spoofing case when specially designed algorithms are used.
In his indictment, Mr. Flotron was not charged with spoofing or commodities fraud, as was, for example, Michael Coscia, who was convicted of such offenses in 2015. (Click here for background on Mr. Coscia’s criminal action 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, 2017 edition of Between Bridges.) Indeed, part of Mr. Flotron’s alleged wrongful conduct — spoofing – was not expressly prohibited by law until July 16, 2011, three years after he commenced his purported illegal activity.
Rather, Mr. Flotron was charged under a provision of law that solely prohibits “two or more persons to commit any offense against the United States or to defraud the United States… and one or more of such persons to do any act to effect the object of the conspiracy.” (Click here to access the exact text of 18 U.S. Code §371.) This provision lays out a high burden for prosecutors, particularly in a case like Mr. Flotron’s where the alleged spoofing was manually conducted, and there was no audit trail of specially designed algorithms, as there was with Mr. Coscia, that might help to establish his intent to effect his purported prohibited conduct. All prosecutors could offer was the testimony of alleged co-conspirators who could speculate what Mr. Flotron was thinking.
Moreover, not only was the Department of Justice unable to have Mr. Flotron’s Connecticut criminal action dismissed and re-filed in Illinois as it wanted, it was prohibited by the federal judge overseeing his trial in Connecticut from introducing evidence of potentially other problematic conduct, e.g., alleged front-running. (Click here for background in the article “Trader Criminally Charged for Alleged Spoofing Prevails in Effort to Quash Evidence of Front-Running at Trial” in the April 8 edition of Bridging the Week.)
As a result, it would be a mistake to draw any conclusion about the status of spoofing under current law solely from the outcome of this case – other than intent is always tough to prove and prosecutors, in a rush, sometimes file the wrong indictment.