Jitesh Thakkar, who was criminally charged earlier this year in a federal court in Chicago with conspiracy to commit spoofing and aiding and abetting spoofing by Navinder Sarao, filed a motion to dismiss his indictment with prejudice. Among other things, Mr. Thakkar claimed that his indictment violated “the constitutional prohibition against arbitrary enforcement” and that a five-year statute of limitation precluded an allegation that he aided and abetted spoofing.
At all relevant times and now, Mr. Thakkar was and is a computer programmer, founder and president of Edge Financial Technologies, Inc. Through this entity he develops electronic trading software and tools.
In November 2016, Mr. Sarao pleaded guilty to criminal charges for allegedly engaging in manipulative conduct through spoofing-type activity involving E-mini S&P futures contracts traded on the CME between April 2010 and April 2015, including illicit trading that contributed to the May 6, 2010 “Flash Crash.” He also settled a CFTC enforcement action related to the same conduct. (Click here for background regarding Mr. Sarao’s settlement and initial charges in the article “Alleged Flash Crash Spoofer Pleads Guilty to Criminal Charges and Agrees to Resolve CFTC Civil Complaint by Paying Over $38.6 Million in Penalties” in the November 13, 2016 edition of Bridging the Week.) Mr. Sarao said he used software provided by Mr. Thakkar to facilitate his spoofing activities.
In his motion to dismiss, Mr. Thakkar claimed that, although he received a request for programming from Mr. Sarao in late 2011 and early 2012, he was not aware it was to be used for spoofing. Moreover, he claimed, other programmers employed by his software development firm and not him created Mr. Sarao’s trading program, which was delivered to Mr. Sarao in January 2012. Finally, Mr. Thakkar claimed he could not have been on notice as to what constituted spoofing for him, as a CFTC guidance explaining spoofing for traders (not programmers) was not published until May 2013, more than a year after the delivery of the software to Mr. Sarao. (Click here to access the CFTC 2013 guidance on spoofing.)
Earlier this year, the Commodity Futures Trading Commission also charged Mr. Thakkar and Edge Financial with spoofing and engaging in a manipulative and deceptive scheme for designing software that was used by an unnamed trader (now known to be Mr. Sarao) to engage in spoofing activities.
According to the CFTC, Mr. Thakkar and Edge Financial aided and abetted the unnamed trader’s spoofing by designing a custom “back-of-book” function. This function automatically and continuously modified the trader’s spoofing orders by one lot to move them to the back of relevant order queues (to minimize their chance of being executed) and cancelled all spoofing orders at one price level as soon as any portion of an order was executed.
Legal Weeds: On January 29, the CFTC and the Department of Justice coordinated announcements regarding the filing of civil enforcement actions by the CFTC, naming five corporations and six individuals, and criminal actions by the DOJ against eight individuals – including six of the same persons named in the CFTC actions – for engaging in spoofing activities in connection with the trading of futures contracts on US markets. One of the individuals included in this group was Mr. Thakkar; however, he was the only software developer named. The other individuals were all accused of engaging in spoofing themselves.
(Click here for details regarding these coordinated actions 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.)
In April 2018, 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. (Click here for details in the article “Former UBS Trader Found Not Guilty of Conspiracy to Defraud for Alleged Spoofing” in the April 29, 2018 edition of Bridging the Week.)
More recently, the United States Supreme Court declined to hear an appeal by Michael Coscia, the first individual convicted of spoofing under an amendment to applicable law adopted as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010. In February, Mr. Coscia requested the US Supreme Court overturn his conviction. (Click here for details in the article “First Trader Criminally Convicted for Spoofing Requests Supreme Court Overturn Decision, Claims Applicable Statute Is Unconstitutionally Vague” in the February 11, 2018 edition of Bridging the Week.)