Justice Department Charges Eight Traders With Deceptive Futures Market Trading -- Update
January 29 2018 - 4:44PM
Dow Jones News
By Gabriel T. Rubin
WASHINGTON -- Federal prosecutors on Monday announced charges
against eight traders for deceptive trading practices in the
futures markets, with all but one person charged with illegal
spoofing.
The traders worked for UBS Group AG and Deutsche Bank AG, among
other firms. The Commodity Futures Trading Commission later
announced related civil charges against three banks and six
individuals.
"Conduct like this poses significant risk of eroding confidence
in U.S. markets and creates an uneven playing field for legitimate
traders and investors," acting assistant attorney general John P.
Cronan said in a statement.
Before Monday's cases, only three individuals had ever been
charged with spoofing, which involves a trader entering large
orders with the intention of tricking others into thinking there
had been a fundamental change in supply and demand in a market.
Congress outlawed the practice in 2010 as part of the Dodd-Frank
Act. In August, a federal appeals court upheld the conviction of
the first U.S. trader to face prison time for manipulating futures
prices using spoofing tactics.
In addition to the criminal charges, the CFTC announced civil
settlements with Deutsche Bank, UBS, and HSBC Securities Inc.
related to commodities fraud and spoofing. Deutsche Bank agreed to
pay $30 million after the CFTC charged it with engaging in a scheme
to manipulate the prices of precious metal futures. UBS reached a
$15 million settlement for similar charges, and HSBC agreed to pay
$1.6 million, also for spoofing in precious metals markets. HSBC's
fine was lower due to the bank's cooperation with the CFTC's
investigation, the agency said.
"These cases should send a strong signal that we at the CFTC are
committed to identifying individuals responsible for unlawful
activity and holding them accountable," said CFTC Enforcement
Director James McDonald.
Monday's cases are the most significant action taken against
banks for spoofing since the CFTC fined Citigroup Inc. $25 million
last January for illegal activity in Treasury futures markets.
Citigroup neither admitted to nor denied the allegations.
In one of the cases, the CFTC fined Andre Flotron, a former UBS
precious metals trader in Stamford, Conn., and Zurich, with
concocting a spoofing scheme for personal and corporate profit. UBS
had provided its futures traders, including Mr. Flotron, with
automated trading software that allowed them to "place, modify, and
cancel multiple orders nearly simultaneously," according to a
criminal indictment filed in September.
Mr. Flotron's lawyer, Marc Mukasey, said the new case "is an
especially enormous waste of taxpayers' money because the CFTC
knows darn well that there is a pending criminal matter, that Mr.
Flotron has long been retired from the business, and that he lives
in Switzerland. Their case is a paper tiger."
Representatives for HSBC didn't immediately respond to requests
for comment.
"UBS is pleased to have resolved this several-year-old matter.
As the CFTC recognizes in the settlement, UBS self-reported this
alleged conduct to the CFTC, cooperated fully in the investigation,
and has long since remediated the conduct," a spokesman for UBS
said.
A spokesperson for Deutsche Bank said the bank provided
"substantial and proactive cooperation with the government's
investigation and has enhanced controls and surveillance to help
ensure that the underlying conduct does not occur in the
future."
The charges against the traders primarily reference activity
before 2015, when both firms and regulators lacked sufficient
controls to monitor for spoofing activity, as trading migrated from
open pits to electronic platforms.
"The conduct at issue here started in 2008," said Michael
Friedman, general counsel of Trillium Management LLC, a New
York-based electronic-trading firm, which isn't involved in the
cases announced Monday. "When this conduct was in its heyday, which
is now seven to eight years ago, people weren't looking to detect
it like they are now."
The cases mark the first major enforcement actions of 2018 for
the CFTC and Mr. McDonald, who took over as enforcement director in
April 2017. The relatively large fines follow a year that saw a
steep drop in total financial penalties, although it can be hard to
compare years that involve a change in agency leadership.
Write to Gabriel T. Rubin at gabriel.rubin@wsj.com
(END) Dow Jones Newswires
January 29, 2018 16:29 ET (21:29 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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