Trader convicted in first US spoofing case
04 Nov 2015
A jury yesterday convicted high-frequency trader Michael Coscia of commodities fraud and "spoofing", in the US government's first criminal prosecution of the banned trading practice.
The verdict is likely to encourage prosecutors to pursue market manipulation cases and high-speed traders to reconsider their strategies, in which deals are executed or cancelled within milliseconds after they are entered, according to commentators.
"This is the clarity that people have been looking for - what exactly is spoofing, what defines it," said Trace Schmeltz, an attorney specialising in white-collar crime at law firm Barnes & Thornburg who was not involved in the case, Reuters reported.
Coscia, who owns New Jersey-based Panther Energy Trading, is accused of having placed large orders into futures markets in 2011 that he had no intention of executing.
According to prosecutors, his goal, was to lure other traders to invests by creating an illusion of demand in order to make money on smaller trades, a practice known as spoofing.
According to commentators, the case might come in handy to authorities who are pursuing the extradition of a UK trader, who allegedly helped cause a 2010 flash.
The case would also help in a lawsuit against a Chicago trader who was fined $660,000 for spoofing by three of the world's largest futures markets.
According to Michael Friedman, general counsel at Trillium Trading more spoofing cases, may expected, Bloomberg reported.
''There's going to be more of them,'' said Friedman, who sees the verdict as showing it was possible for jurors to distinguish spoofing schemes from regular market-making activity.
Witnesses for the prosecution showed data from two exchanges regarding how large orders placed by Coscia were frequently cancelled, while very few of the smaller orders he placed were cancelled.
According to commentators, the large orders were placed in order to manipulate the market and move prices so Coscia could make money on the other side of the trade, according to prosecutors.
Prosecutors claim Coscia made an illegal profit of around $1.4 million in three months in what they termed as a bait-and-switch scheme.
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