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Nov 03, 2015

First HFT conviction for spoofing

Trader faces prison term and fines following conviction for entering misleading orders to simulate demand

A high-frequency trader in the US has become the first person ever convicted of spoofing after the government won a case against him for entering large orders into the futures markets that he never intended to execute.

Michael Coscia, who owns New Jersey-based Panther Energy Trading, was convicted of 12 counts of the deceptive trading practice, which involves placing multiple small orders to create the illusion of demand, then cancelling them and selling as the price of a stock or commodity rises.

US prosecutors accused Coscia of making almost $1.4 mn in less than three months in 2011 through spoofing in the foreign exchange, oil, soya bean, corn and gold markets. He faces up to 25 years in prison and $250,000 fines in each of six counts of commodities fraud in addition to one year in prison and up to $1 mn in fines for each of six counts of spoofing. His sentencing is scheduled for March 17, 2016.

Coscia paid a fine of $2.8 mn and agreed to a one-year trading ban in 2013 in a related civil case, though this case was not permitted as evidence in the criminal trial. The criminal conviction was the first under the US Commodity Exchange Act’s spoofing provision, which was mandated by the 2010 Dodd-Frank financial reform.

‘The defendant’s trading activities disrupted the markets in his favor and against legitimate traders and investors,’ says Zachary Fardon, US attorney for the Northern District of Illinois, in a press statement. ‘We have to have fairness and integrity in our markets. The jury’s verdict exemplifies the reason we created the securities and commodities fraud section in Chicago, which will continue to criminally prosecute these types of violations.’

The conviction comes as US authorities await extradition hearings for Navinder Singh Sarao, the UK-based trader facing criminal spoofing charges related to the May 2010 flash crash.