com/news/11-12-14-derivatives-update; "Prudential Regulators Re-Propose Rules for Mandatory Margining of Uncleared Swaps; Similar CFTC Re-Proposal Anticipated Shortly," available at: http://www.sidley.com/en/news/09-15-14-derivatives-update. 18 7 U.S.C. §6c(a)(1)(2).19 7 U.S.C. §6c(a)(5).20 7 U.S.C. §9.21 7 U.S.C. §6c(a)(7).22 7 U.S.C. §9.23 7 U.S.C. §§13c, 2(a)(1)(B).
[14]Wang Complaint ¶ 3.[15] 7 U.S.C. § 6c(a)(5)(C) (rendering it “unlawful for any person to engage in any trading, practice, or conduct on or subject to the rules of a registered entity 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)”). [16] Other statutes under which the SEC has pursued spoofing charges include Section 17(a) of the Securities Act, 15 U.S.C. § 77q(a); Section 9(a) of the Exchange Act, 15 U.S.C. § 78i(a); and the Securities Act’s and Exchange Act’s aiding and abetting provisions, 15 U.S.C. § 77o(b) and 15 U.S.C. § 78t(e).
United States v. Flotron, 3:17-cr-00220, Jury Verdict Form (D. Conn. April 25, 2018). The U.S. Department of Justice (“DOJ”) also alleged that the Trader committed commodities fraud under 18 U.S.C. §§ 2 and 1348, and spoofing under 7 U.S.C. § 6c(a)(5)(C), but those charges were dismissed before trial on grounds of improper venue. This trial was the first of its kind for criminal spoofing charges.
No. 38 at 15:19-20 (D. Conn. Nov. 6, 2017).2)United States v. Flotron, No. 17-cr-220, 2018 WL 1401986 (D. Conn. Mar. 20, 2018); Minute Entry, United States v. Flotron, No. 17-cr-220, Dkt. No. 161 (D. Conn. Mar. 24, 2018).3) U.S. DEP’T OF JUSTICE, Acting Assistant Attorney General John P. Cronan Announces Futures Market Spoofing Takedown (Jan. 29, 2018)4) 7 U.S.C. § 6c(a)(5)(C).5) 7 U.S.C. § 13(a)(2).6)See 18 U.S.C. § 1343; 18 U.S.C. § 1348..7) 7 U.S.C. § 6c(a)(5)(C).8)See United States v. Coscia, 866 F.3d 782, 790 (7th Cir. 2017); Government’s Witness List, United States v. Flotron, No. 17-cr-220, Dkt.
The prohibitions extend to futures contracts executed pursuant to the rules of a CFTC-regulated futures exchange or swaps executed on a swap execution facility (SEF). Previously, only three people had been publicly charged with criminal spoofing.5 On February 2, 2018, Michael Coscia, the first person to be convicted of spoofing in the U.S., petitioned the U.S. Supreme Court to review his conviction, asserting that the anti-spoofing statute, 7 U.S.C. § 6c(a)(5)(C), is unconstitutionally vague — a challenge he lost in the lower courts.6 Many spoofing schemes follow a relatively similar pattern: A trader places a bid or offer (a “resting” order) on one side of the market and then a larger bid or offer (a “spoof” order) on the opposite side of the market. The trader intends to cancel the spoof order before it is filled.
As a result, the futures transactions were non-bona fideunder applicable law and the relevant CFTC regulation, alleged the Commission. (Clickhereto access 7 USC §6c(a)(1) and (2) andhereto access CFTC Rule 1.38.)
Can trading pursuant to an algorithmic program properly be found to constitute “spoofing” in violation of CEA Section 4c(a)(5)(C): What constitutes “the intent to cancel the bid or offer before execution”? Since Section 747 of the Dodd-Frank Act amended the Commodity Exchange Act (the “CEA”) to prohibit “spoofing” and other practices the statute labels as “DISRUPTIVE,” commentators have suggested the anti-spoofing provision (codified at 7 U.S.C. §6c(a)(5)(C)) is vague and ambiguous. Traders charged with “spoofing” have taken up these arguments.
In United States v. Coscia, the District Court for the Northern District of Illinois Eastern Division declined to dismiss an indictment for “spoofing” against a high frequency trader under 7 U.S.C. §§ 6c(a)(5)(C) and 13(a)(2) based on the defendants allegations that the statute was void for vagueness. It is important to note that since this was a motion to dismiss the Court was required to assume the allegations in the complaint are true.
isdictions to ‘keep countries clean of [violations of law]’ by ‘not landing .com anywhere. This is the main reason .com does not land anywhere.’” Id. at ¶ 5. Based on this alleged conduct, the CFTC charged Defendants with violating Section 4(a) of the CEA, 7 U.S.C. § 6(a), and Regulation 1.6, 17 C.F.R. § 1.6 (2022), or, in the alternative, the CFTC charged Defendants with violations of Section 4(b) of the CEA, 7 U.S.C. § 6(b), and Regulation 48.3, 17 C.F.R. 48.3 (2022).Along with the alleged purposeful obfuscation of the entity’s location, the CFTC claims that the CEA requires, absent certain exemptions, that commodity derivative transactions are conducted on CFTC-designated or -registered exchanges. Due to this requirement, the CFTC alleges that Defendants failed to register commodity options it dealt with on any registered board of trade and failed to seek registration as an exempt foreign board of trade. Thus, the CFTC charged Defendants with violations of Section 4c(b) of the CEA, 7 U.S.C. § 6c(b), and Regulation 32.2, 17 C.F.R. § 32.2 (2022). Similarly, the CFTC stated that Defendants should have registered as a Futures Commission Merchant and a Designated Contract Market or Swap Execution Facility. Due to this alleged failure, the CFTC charged Defendants with violating Sections 4d and 5h(a)(1) of the CEA, 7 U.S.C. §§ 6(d), 7b-3(1), and Regulation 37.3(a)(1), 17 C.F.R. § 37.3(a)(1) (2022).The CFTC also claims that Defendants failed to adequately supervise and implement appropriate policies and procedures to prevent money laundering and funding of terrorism. The CFTC’s complaint states that, in an effort to circumvent restrictions on U.S.-based customers, Defendants allegedly instructed U.S. customers to obscure their location by using virtual private networks (“VPNs”), not submitting proof of identity, and opening Company accounts under shell companies. To support this allegation, the CFTC’s claims highlighted that the Company’s VPN guide, which stated that “you might want to
“Spoofing” is defined by statute as placing a bid or offer with the intent to cancel before execution. See 7 U.S.C. § 6c(a)(5)(C).According to the complaint filed on September 29, 2020, in federal district court for the Northern District of Illinois, shortly after Mr. Banoczay Jr. suffered a string of trading losses in early 2018, he developed a “spoofing strategy” in which he engaged in spoofing on more than 2,000 occasions in less than a month trading crude oil futures on CME’s Globex electronic trading platform. More specifically, his spoofing activity increased from an average of twenty-seven times per day to an average of over 200 times per day, reaching 700 times on a single day.