On April 25, 2018, a New Haven federal jury acquitted a former trader with a global bank accused of scheming to manipulate the precious metals futures markets with “spoofing,” a trading tactic that involves the use of allegedly deceptive bids or offers to feign the appearance of supply or demand. This appears to be one of the first setbacks for the Department of Justice (“DOJ”), U.S. Commodity Futures Trading Commission (“CFTC”), and futures self-regulatory organizations since they began aggressively investigating and civilly and criminally charging futures traders with spoofing several years ago. After successfully defeating Michael Coscia’s appeal to the U.S. Court of Appeals for the Seventh Circuit, this aggression accelerated with the CFTC’s and DOJ’s coordinated charges in January against several firms and traders. This verdict, however, may cause them to re-visit their aggression and certain strategies.
While it is virtually impossible to fully comprehend the decision-making process behind a jury’s decision, several of the defense strategies apparently proved successful and may present strategies for others to apply in the future. Specifically, the defense themes included strenuously arguing that:
* The prosecution’s trading analysis was “prosecution by statistics” and that people should not be “convict[ed] with charts and graphs”; and
* The prosecution’s trading analysis amounted to an exercise in cherry-picking a few hundred trades out of more than 300,000 without presenting them in the full context.
Lastly, while the CFTC announced new advisories touting the benefits of cooperation, another defense strategy applied here involved vigorously attacking two prosecution witnesses who had “struck deals” with the government. All of these strategies proved successful as the jury returned its not guilty verdict one day after the trial concluded with closing arguments.
We will have to wait to see what, if any, impact this verdict has on other spoofing investigations and cases. In the meantime, however, the defense strategies applied here can be studied and applied to the defense of other spoofing cases being pursued by the CFTC and DOJ.