While the year 2020 has seen many changes, US law enforcement’s focus on “spoofing” and similar variations of market manipulation has remained a constant.
The Commodity Futures Trading Commission (CFTC), Securities and Exchange Commission (SEC), and Department of Justice (DOJ) all recorded important victories, in spite of defendants’ continued efforts to chip away at regulators’ evolving theories of liability. While their US counterparts were imposing large penalties for spoofing, the attention of British and European authorities was largely elsewhere this year. But with the UK and European Union (EU) governments needing to replenish their pandemic-affected treasuries, it would be a surprise if they did not attempt to replicate the Americans’ success in due course.
The past 12 months has been notable for a number of events in this area of law. For all the wide-ranging effects of the COVID-19 outbreak, it did little to slow down the CFTC’s regulatory actions against spoofing in 2020. The agency recorded the largest ever civil penalty in its history for alleged spoofing, with a $920 million fine being imposed on JP Morgan.
Yet what is significant is that nearly all of the actions brought by the CFTC in 2020 were not contested. As a result, it remains to be seen whether the CFTC can successfully prove spoofing at trial. It should also be noted that spoofing actions filed by US regulators are continuing to disproportionately target traders located overseas; with defendants based in London, Ukraine, Bratislava, Hong Kong, China, Australia, South Korea and the United Arab Emirates.
The other points of significance from the past 12 months are:
* There were no new cases targeting so-called “vacuuming,” a variety of spoofing involving “fake” orders placed on the same side of the market as “real” ones.
* The SEC is continuing to target spoofing in the equities markets. In addition to securing a final judgment in its case against Lek Securities, the SEC settled two other spoofing actions and pressed ahead with its market manipulation case filed in Boston against dozens of Chinese nationals.
* The DOJ netted over $981 million in monetary penalties from corporate defendants for spoofing-related misconduct. This is its biggest ever annual haul for such crimes.
* The DOJ secured a mixed verdict against two former Deutsche Bank precious metals traders following a trial in Chicago. The trial judge suggested this result was susceptible to challenge, and defence motions for an acquittal and a new trial remain pending.
* Despite nine criminal spoofing convictions since 2015 (mainly through cooperation agreements), it is now five years since a US court imposed a prison sentence for spoofing. Nobody has gone to jail for this since Michael Coscia’s 36-month sentence.
• Mirroring enforcement tactics used in the US, UK regulators are now using large-volume data analytics to investigate spoofing. The Financial Conduct Authority (FCA) announced a number of open spoofing investigations and brought its latest enforcement action targeting the practice this year, against a London-based trader.
• Regulators at the EU’s ACER (Agency for the Cooperation of Energy Regulators) issued new guidance on market manipulation and appears to be taking a keen interest in manipulative trading on energy markets.
This article is an extract from the Rahman Ravelli publication “2020. Year in Review. Spoofing and Market Manipulation.’’ It is available at