THE NEW FEDERAL FINANCIAL CRIME OF “SPOOFING”: EVEN ON THE SCORECARDS APPROACHING ROUND THREE; LESSONS FOR THE FUTURE?
© 2018 The Roger C. Wilson Law Firm, PC, Atlanta Georgia
After the first jury trials in prosecutions for a new federal financial crime - “spoofing” - the score is even as between the Government and defendants. The litigation experience to date provides possible instruction and strategy roadmaps for lawyers handling future spoofing cases and other cases involving similar alleged financial crimes.
The crime of “spoofing”, applicable to commodities trading, was created by the Dodd-Frank Act in 2010 (new section 4c(a)(5)(C) of the Commodity Exchange Act -- (7 U.S.C. § 6c(a)(5)(C)). (Termed “spoofing” in the new statute, it is also referred to as “layering”.) Basically, it is the placing of buy or sell orders for commodities with the intention that the orders will not be completed. The new law targets situations in which such orders are placed solely to affect market price and in the commodity, so that the person placing the orders then can benefit from the resulting price moves by conducting actual trades at the new prices.
The spoofing prohibition is one part of the larger targeting of “market manipulation”, also applicable (by other statutes) to the trading of stocks as well as to commodities.
In late 2016 the first spoofing case went to trial in Chicago against New Jersey resident, Michael Coscia, on twelve charges of spoofing and commodities fraud. (For each of six transactions targeted in the indictment, Coscia was charged with both spoofing, under 7 U.S.C. §§ 6c(a)(5)(C) and 13(a)(2), and criminal commodities fraud under 18 U.S.C. § 1348.) 1:14-CR-00551 (N.D. Ill). In a dramatic opening success for the Government, the jury took barely an hour to find Coscia guilty on all counts.
New indictments and cases followed the initial success. A few weeks ago the second case went to trial, this one against a UBS trader, Andre Flotron. 3:17-CR-00220 (D. Conn.). Equally dramatically, in that second trial the jury took not much longer than an hour to find Flotron not guilty. To complete the drama, just after the Flotron acquittal, the U.S. Supreme Court declined to consider Coscia’s appeal of his conviction.
Thus, the score is now 1 to 1 for the Government and defense, and the Supremes are not getting involved. Defense lawyers in future trials will be anxious to identify and utilize any lessons or strategies that may be available from these two opening trials.