David Liew, a former junior trader that many media sources have indicated was based in Singapore and associated with Deutsche Bank, pleaded guilty in a federal court in Chicago on June 1 to engaging in spoofing, manipulation, and attempted manipulation of gold and silver futures on the Commodity Exchange, Inc. from December 2009 through February 2012.

On June 2 Mr. Liew also settled charges brought by the Commodity Futures Trading Commission related to the same matter by agreeing never to trade commodity interest contracts under the CFTC’s jurisdiction and never to associate with a CFTC registrant in any capacity. As part of his CFTC settlement, however, Mr. Liew was not assessed a penalty or required to disgorge any trading profits he may have realized. This was because, said the CFTC, Mr. Liew entered into a formal cooperation agreement with it, provided the Commission with substantial assistance to date, and promised to continue to cooperate with the Commission and other government agencies.

According to the CFTC and the plea agreement entered by Mr. Liew, during the relevant time, Mr. Liew entered into “hundreds of bids and offers” with the intent to cancel the orders before execution. He did this either to facilitate the execution of an order he placed on the opposite side of the market, or that other unnamed persons associated with his employer placed. Typically, after the desired order was filled, the spoofing orders that were previously placed to move the market were cancelled.

Mr. Liew acknowledged that all the orders subject to his two settlements were spoofing orders although, in some cases, the spoofing orders did not work as anticipated to drive the market up or down, and in some other cases, all or part of the spoofing orders were executed. Mr. Liew placed his orders manually by clicking a computer mouse or using his keyboard.

In addition, both the CFTC and the plea agreement referenced that, on occasion, Mr. Liew coordinated with an unnamed trader at “another [non-specified] major global bank” to engage in manipulation or attempted manipulation in order to move the gold and silver futures market to activate resting stop orders. After the stop orders were elected, Mr. Liew would liquidate his position by buying or selling back positions to profit.

According to Mr. Liew’s plea agreement, Mr. Liew “was taught to spoof by other metals traders, including other metals traders” at his employer.

In his criminal matter, Mr. Liew was formally charged with one count of conspiracy to commit wire fraud affecting a financial institution and spoofing. For this, he faces potential imprisonment from 24 to 30 months according to applicable sentencing guidelines. However, the Department of Justice indicated that it would recommend a lower sentence if Mr. Liew continued to provide “full and truthful cooperation.”

In connection with his CFTC Charges, Mr. Liew was charged with attempted manipulation and manipulation for his conduct prior to August 15, 2011. He was also charged with spoofing and using or attempting to use a manipulative device for this conduct on and after August 15, 2011 – express prohibitions of law that first became effective during July 2011 (one year after the enactment of the Dodd Frank Wall Street Reform and Consumer Protection Act).

Mr. Liew had only just begun working as a metals trader in December 2009 when he initiated his spoofing conduct, following completion of his employer’s global analyst program in approximately July 2009, according to Mr. Liew’s criminal plea.

Legal Weeds: The criminal action against Mr. Liew marks the third criminal action brought against an individual for spoofing.

In the first action, Michael Coscia was criminally charged with spoofing in October 2014 after settling civil actions related to the same conduct with the CFTC, the UK Financial Conduct Authority and the CME Group in July 2013. He was convicted of this offense in November 2015 and is currently serving a three-year prison term. (Click here for details of Mr. Coscia’s civil charges and settlements in the article, “CFTC, UK FCA and CME File Charges and Settle with Proprietary Trading Company and Principal for Spoofing” in the July 22, 2013 edition of Between Bridges. Click here for details of Mr. Coscia's criminal conviction and sentencing 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.)

Mr. Coscia’s conviction is currently being considered by a federal appeal court based in Chicago. Mr. Coscia had argued, among other things, that the provision of law prohibiting spoofing under which Mr. Coscia was prosecuted had not given him adequate notice of what trading activity was precisely prohibited. (Click here for background in the article, “Federal District Court Approves Flash Crasher’s US $38 Million Settlement; Federal Appeals Court Appears Sympathetic to Michael Coscia’s Claim That Spoofing Prohibition Is Too Vague” in the November 20, 2016 edition of Bridging the Week.)

In the second action, Navinder Sarao was criminally charged during April 2015 with engaging in manipulative conduct, including spoofing, involving E-mini S&P future contracts traded on the Chicago Mercantile Exchange between April 2010 and April 2015 including specific conduct that contributed to the May 6, 2010 flash crash. He pleaded guilty to his charges in November 2016 and awaits sentencing. For his offenses, Mr. Sarao was also charged by the CFTC. He settled with the Commission by agreeing to pay over $38.6 million in penalties and other sanctions. (Click here for background regarding Mr. Sarao’s criminal plea and CFTC settlement in the article, “Alleged Flash Crash Spoofer Pleads Guilty to Criminal Charges and Agrees to Resolve CFTC Civil Complaint by Paying Over US $38.6 Million in Penalties” in the November 13, 2016 edition of Bridging the Week.)

Just a few weeks ago, the CFTC resolved charges against Stephen Gola and Jonathan Brims, former associated persons of a futures commission merchant that recently settled its own CFTC charges, for engaging in spoofing activities from July 16, 2011, through December 31, 2012. According to the CFTC, the individuals engaged in spoofing conduct on more than 1,000 occasions by placing bids or offers for US Treasury futures products with an intent to cancel the orders before execution. (Click here for background in the article, “Former FCM Traders Settle CFTC Charges They Engaged in Spoofing More than 1,000 Times” in the April 2, 2017 edition of Bridging the Week.)

Given Mr. Liew’s cooperation agreement and language in both Mr. Liew’s plea agreement and the CFTC settlement order, more legal actions related to the conduct underlying Mr. Liew’s charges appear highly likely.