The Department of Justice opposed the efforts of the first individual convicted of spoofing under a Dodd-Frank law to have the US Supreme Court hear his appeal.
US Opposes Effort of Imprisoned Trader to Have Supreme Court Consider Overturning Conviction for Spoofing: The Department of Justice filed a brief with the US Supreme Court opposing Michael Coscia’s prior petition requesting that the Court consider overturning his 2015 conviction for spoofing. The DOJ argued that the anti-spoofing provision of law under which Mr. Coscia was convicted was not void for vagueness, as he had argued. (Click here to access Commodity Exchange Act, 7 U.S. Code § 6c(a)(5).) According to the DOJ, while some orders may be placed with the possibility they may be cancelled prior to execution, they are “designed to be executed upon the arrival of certain subsequent events.” This contrasts with spoofing orders that are prohibited under law, because they “are never intended to be filled at all.” Mr. Coscia was the first person convicted of spoofing under the express prohibition enacted under the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010. (Click here for background regarding Mr. Coscia’s arguments 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.) He was sentenced to three years imprisonment in July 2016. (Click here for details in the article, "Michael Coscia Sentenced to Three Years’ Imprisonment for Spoofing and Commodity Fraud" in the July 27, 2016 edition of Bridging the Week.)
My View: As I have repetitively written, the anti-spoofing provision of law enacted as part of Dodd-Frank is badly drafted because it uses a term that is assumed to be commonly understood and is followed by a parenthetical that is too broad in scope. The law on its face seems clear; it prohibits trading that “is, is of the character of, or is commonly known to the trade as, ‘spoofing’ (bidding or offering with the intent to cancel the bid or offer before execution).” However, this provision fails to reference the totality of the transaction that is potentially problematic – namely the placement of an order with the intent to cancel it prior to its execution to induce the non-bona fide execution of an opposite-side-of-the-market order.
I am still struck that the DOJ’s own criminal complaints alleging spoofing belie that placement of orders and cancelling them alone is problematic – it is that behavior coupled with the intent to execute opposite-side-of-the-market orders initially away from the prevailing best bid and offer that is wrongful. (Click here for background 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.)
Now it’s up to the Supreme Court to decide.