Bridging the Week by Gary DeWaal: October 5 to 9 and 12, 2015 (Spoofing; Politics; Non-Public Information Sharing; Inadequate Disclosures)

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Published Date: October 11, 2015

Alleged spoofing occupied center stage in financial services last week. The Securities and Exchange Commission charged a trader  — Eric Oscher — and his firm with spoofing after the trader made complaints to the New York Stock Exchange of spoofing by other traders, while both parties to a criminal case alleging spoofing by Michael Coscia on CME Group exchanges and ICE Futures Europe in 2011 fine-tuned their arguments in anticipation of the commencement of his trial later this month. Meanwhile, a US presidential candidate offered her vision of enhanced regulation of financial services firms and markets, including imposing a transaction tax on firms with excessive levels of order cancellations. As a result, the following matters are covered in this week’s edition of Bridging the Week:

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SEC-Sanctioned Trader Began Alleged Spoofing After Complaining About Spoofing by Others to NYSE

Eric Oscher and Briargate Trading, LLC, a company 50 percent owned by Mr. Oscher, agreed to pay an aggregate fine of US $500,000 and disgorge profits of $525,000 to resolve charges brought by the Securities and Exchange Commission that they engaged in prohibited spoofing activities involving securities listed on the New York Stock Exchange from October 2011 through September 2012.

According to the SEC, during this time, Mr. Oscher caused his company to place a series of large, non-bona fide orders to buy or sell certain stocks prior to NYSE market open (the SEC termed these non-bona fide orders “spoofs”). The intent of these orders, claimed the SEC, was to drive the price of the stock up or down in the pre-open period by contributing to a perception that there was a large buying or selling interest.

Briargate would then place orders in the opposite direction of its spoofs on other markets that listed the same stock but that opened prior to NYSE. After these bona fide orders were executed, Mr. Oscher would have Briargate cancel its NYSE pre-market open orders. He would then cause Briargate to liquidate its executed positions after the relevant stock price reacted to elimination of the large non-bona fide buying or selling interest.

Mr. Oscher and Briargate engaged in this type of trading activity in 242 instances during the relevant time, realizing US $525,000 in profits, said the SEC.

The SEC claimed that Mr. Oscher began utilizing this trading strategy in October 2011 after he had complained to NYSE,

…that other market participants were engaging in manipulative conduct involving large cancelled orders. For example, in the spring of 2011, Briargate complained to the NYSE that the data feeds provided by the NYSE were “susceptible to manipulation where parties look to gain advantage by entering non bona fide orders to entice others to trade.”

The SEC claimed that defendants trading was “manipulative” and thus violated provisions of law that prohibit engaging in transactions “creating actual or apparent actual trading” in a relevant security “or raising or depressing the price of such security, for the purpose of inducing the purchase or sale of such security by others.” The SEC also charged that defendants’ trading constituted a device, scheme or artifice to defraud or was an act or practice that operates as a fraud or deceit.

The defendants also agreed to pay prejudgment interest of almost US $38,000 as part of their settlement.

Government and Defendant Fine-Tune Spoofing Arguments in Advance of Coscia Criminal Trial:

With the scheduled criminal trial of Michael Coscia for alleged spoofing scheduled to commence two weeks from today on October 26, 2015, the US Attorney’s Office in Chicago indicated its intent to narrow the theory of its case, while both parties made motions to prevent the other side from introducing certain evidence during trial and arguments they claimed might inflame and distract the jury.

Mr. Coscia, who was the subject of and settled civil enforcement actions brought by the Commodity Futures Trading Commission, CME Group exchanges and the Financial Conduct Authority for alleged spoofing activities involving futures traded on CME Group exchanges and ICE Futures Europe from August through October 2011, was indicted in Chicago in October 2014 for some of the same transactions.

Although Mr. Coscia had been charged in his indictment with engaging in conduct that “is of the character or known to the trade as spoofing” – paralleling the relevant provision of law — the US Attorney’s Office advised the court hearing the matter that it only intends to prove that each relevant transaction is spoofing. According to the US Attorney’s Office,

[t]his decision will streamline the trial and avoid the need for any litigation as to whether defendant’s trades are ‘of the character’ of spoofing or were ‘commonly known in the industry’ as spoofing. Evidence on these matters, including the industry’s understanding of the term "spoofing," will be irrelevant.

The US Attorney’s Office also requested the court to bar defendant from introducing evidence or arguments related to possible vagueness of the relevant spoofing law, or regulations or interpretations of the CFTC, FCA, CME Group or ICE related to spoofing. “This Court will define the law and the sole issue at trial is whether the defendant committed a crime, not whether his action violated a CFTC regulation or a CME Group rule,” argued the US Attorney’s Office in its motion papers.

Mr. Coscia similarly made a motion to bar the government from introducing evidence or arguments related to regulatory investigations into defendant’s conduct and his settlements; alleged market harm or disruption that is unrelated to Mr. Coscia’s trading activities; any reference to manipulation; lay witness descriptions of defendant’s trading as “spoofing;” and complaints by non-testifying market participants regarding Mr. Coscia’s trading.

Mr. Coscia settled his civil enforcement actions for an aggregate fine in excess of US $3 million, disgorgement of US $1.3 million of trading profits and trading suspensions. (Click here for further background regarding Mr. Coscia’s indictment in the article “NJ-Based Trader Previously Sanctioned by UK FCA, CFTC and CME Indicted in Chicago for Same Spoofing Offenses” in the October 5, 2014 edition of Bridging the Week.)

Legal Weeds: The US Attorney’s strategy in this case is interesting. Under the plain language of the relevant statute, “spoofing” is the “bidding or offering with the intent to cancel the bid or offer before execution.” However, as the CFTC said in its interpretive guidance regarding this provision (click here to access), spoofing may be defined a certain precise way in the statute, but the conduct defined as spoofing may not always be prohibited conduct. According to the CFTC, “a spoofing violation will not occur when the person’s intent when cancelling a bid or offer before execution was to cancel such bid or offer as part of a legitimate, good-faith attempt to consummate a trade.” The CFTC appears to recognize there is a distinction between spoofing the law and spoofing the lore: “[a]s with other intent-based violations, the Commission intends to distinguish between legitimate trading and ‘spoofing’ by evaluating all of the facts and circumstances of each particular case, including a person’s trading practices and patterns.” This interpretation is consistent with guidance by CME Group and ICE Futures U.S. (Click here for background on CME Group’s interpretation of its Rule 575 and here for background on ICE Futures U.S. interpretation if its Rule 4.02(l).) In other words, the statute may endeavor to define spoofing, but that’s not what spoofing — the prohibited conduct — always is.


My View: It is easy for politicians to get caught up in the enthusiasm of a campaign and issue proposals and make promises that, in practice, are very hard and impracticable to realize. As Ms. Clinton’s campaign’s chief financial officer, Gary Gensler, had to recognize as chairman of the Commodity Futures Trading Commission, there is even a big difference between enacting purported populist regulations and having such regulations achieve their intended purpose (particularly without unintended consequences) – as evidenced by the steady stream of no-action letters and other forms of guidance the CFTC has had to issue in connection with its Dodd-Frank-instituted regulations to clarify, delay or conform the regulations to reality.

Compliance Weeds: Accommodation trades are typically transactions entered into by a trader to assist another trader with prohibited transactions. Such trades are prohibited under applicable law (click here to access Commodity Exchange Act §4c(a)(2)(i)) and exchange rules (click here, e.g., to access IFUS rule 4.02(c) and here for Chicago Mercantile Exchange rule 534).

And more briefly:

For more information, see:

Broker-Dealer and Affiliated Investment Adviser Sanctioned for Sharing Non-Public Information:

Candidate Clinton Calls for High-Frequency Trading Tax and Toughening Volcker Rule:

CME Group Updates Disruptive Practices MRAN in a Minor Way:

ESMA Says 2016 Goal is Regulation Convergence:

ESMA’s Final Rules on Indirect Clearing Will Be Delayed:

Gemini Bitcoin Exchange Receives Regulatory Authorization by NYS Department of Financial Services:

See also, Gemini www site:

Government and Defendant Fine-Tune Spoofing Arguments in Advance of Coscia Criminal Trial:

Coscia Memorandum of Law in Support of Motion In Limine:
Department of Justice Motion In Limine:
Department of Justice Motion to Narrow Proof:


ICE Futures U.S. Sanctions Firms for Block Trade and Position Reporting Infractions:

Barclays Capital:
BP Energy:

SEC Alleges Investment Advisers’ Failure to Disclose Pocketing of Legal Fees Discount Constitutes Conflict of Interest:

SEC-Sanctioned Trader Began Alleged Spoofing After Complaining About Spoofing by Others to NYSE:

SEC Approves FINRA Rule to Increase OTC Equities Transparency:

See also, FIRNA SEC Rule Amendment Submission:

US Supreme Court Declines to Consider Appellate Decision Tossing-Out Todd Newman's Insider Trading Conviction:

See also, US Department of Justice Petition for Writ of Certiorari:

The information in this article is for informational purposes only and is derived from sources believed to be reliable as of October 10, 2015. No representation or warranty is made regarding the accuracy of any statement or information in this article. Also, the information in this article is not intended as a substitute for legal counsel, and is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. The impact of the law for any particular situation depends on a variety of factors; therefore, readers of this article should not act upon any information in the article without seeking professional legal counsel. Katten Muchin Rosenman LLP may represent one or more entities mentioned in this article. Quotations attributable to speeches are from published remarks and may not reflect statements actually made.

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Gary DeWaal

Gary DeWaal is currently Special Counsel with Katten Muchin Rosenman LLP in its New York office focusing on financial services regulatory matters. He provides advisory services and assists with investigations and litigation.

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