A high-frequency trader was indicted for “spoofing” -- placing and immediate canceling orders as a way to manipulate commodities markets -- in what the U.S. Justice Department says is the first criminal case of its kind.
Michael Coscia, 52, of Rumson, New Jersey, the principal of Panther Energy Trading LLC, was indicted by a federal grand jury in Chicago and charged with six counts of commodities fraud and six of spoofing. He’s accused of illegally reaping almost $1.6 million as a result of orders placed through CME Group Inc. and European futures markets in 2011.
Coscia last year settled civil claims by the U.S Commodity Futures Trading Commission by paying a $2.8 million fine and consenting to a one-year trading ban.
The anti-spoofing statute is part of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. Some trading firms have found the definition too vague and pressed CME to be more specific, two people familiar with the matter said last month.
Coscia’s indictment was returned by a grand jury yesterday and announced today by the office of U.S. Attorney Zachary Fardon in Chicago. Each spoofing count carries a maximum sentence of 10 years in prison and a fine of as much as $1 million. Each commodities-fraud charge is punishable by as long as 25 years in prison and a $250,000 fine.
Coscia’s attorney, Richard Reibman, said in an e-mailed statement he was reviewing the indictment and that it would be “premature” to comment on it. Coscia’s arraignment isn’t yet scheduled.
It’s against the law to spoof, or post requests to buy or sell futures, stocks and other products in financial markets without intending to actually follow through on those orders.
Spoofers try to make money by feigning interest in trading at a certain price, creating the illusion of demand in an attempt to get other traders to move prices in a way they can profit from. The spoofer cancels the original trade before it’s executed, and buys or sells at the new price.
The CFTC yesterday won a consent order from a federal court requiring another trader, Eric Moncada, to pay $1.56 million to settle allegations that he entered noncompetitive trades and engaged in spoofing in wheat futures markets. Moncada, who was barred from trading any wheat contract for five years, neither admitted nor denied wrongdoing, according to the order.
CME Group, operator of the world’s largest futures market, instituted a rule against the practice on Sept. 15.
“No person shall enter or cause to be entered an order with the intent, at the time of order entry, to cancel the order before execution or to modify the order to avoid execution” in an effort to prohibit “the type of activity identified by the Commission as ‘spoofing,’” CME told the CFTC in a letter.
The tactic was defined for the first time in the Dodd-Frank legislation as “bidding or offering with the intent to cancel the bid or offer before execution”
The case is U.S. v. Coscia, 14-cr-551, U.S. District Court, Northern District of Illinois (Chicago).
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