First Trader Convicted of Spoofing Gets 3-Year Prison Term

Michael Coscia, the first person convicted of spoofing after it was made a crime under the Dodd-Frank Act, was sentenced to three years in prison by a federal judge in Chicago, less than half the time sought by prosecutors.

Spoofing, which became illegal under the Dodd-Frank Act, carries a maximum of 10 years in prison. The practice typically consists of systematically placing orders without intending to execute them to trick the market into thinking there’s interest in buying or selling that doesn’t actually exist.

Coscia, 54, was convicted by a jury in November of manipulating futures markets by placing unusually large orders he didn’t intend to execute and then filling smaller trades on the opposite side. Prosecutors said it was a bait and switch scheme that yielded Coscia, the head of Panther Energy Trading LLC, more than $1 million over 2 1/2 months in 2011. The scheme resulted in losses to high frequency trading houses that were placing and executing orders at the same time.

Prosecutors had sought a term as long as seven years and three months. Coscia’s lawyers, who argued for probation, said sentencing guidelines allowed for a term of only four to 10 months.

His three-year prison term is to be followed by two years of supervised release.

Coscia’s sentencing follows a ruling Tuesday in a spoofing lawsuit brought by the Commodity Futures Trading Commission allowing a defendant to continue trading before a trial set for January. Igor Oystacher, of 3Red Trading LLC, was accused by the CFTC of continuing illegal trades even after it sued him. read more »

Spoofing Fighting Finagling in Financial Markets

It’s a new crime but it isn’t new. It has a silly name but it’s no joke. Spoofing, a way to manipulate financial markets for illegitimate profit, is blamed for undermining the integrity of trading and contributing to the scariest crash since the financial crisis. Spoofers trick other investors into buying or selling by entering their own buy or sell orders with no intention of filling them. That creates fake demand that pushes prices up or down. Long considered disreputable but rarely dangerous, spoofing has emerged in an era of computerized trading as a threat to market legitimacy. Regulators, lawmakers and market authorities are struggling to define and control it.

The Situation:

In November 2015, a Chicago jury took only an hour to convict a high-speed commodities trader, Michael Coscia, in the first spoofing trial conducted under a 2010 law. In another high-profile prosecution, a futures trader named Navinder Sarao was arrested in suburban London in April 2015. U.S. authorities said Sarao’s activities contributed to the flash crash of May 2010, when almost $1 trillion was temporarily wiped out in the U.S. stock market. While reports of spoofing in U.S. stocks date to 1999, Coscia and Sarao were the first two people criminally charged. Another trader was charged in a civil suit filed in October by the  Commodity Futures Trading Commission. Bond markets are vulnerable too; that’s why new guidelines released in June for the $12.6 trillion U.S. Treasury market say that investors may not place trades “that give a false impression” of what’s going on. And New York Attorney General Eric Schneiderman began investigating possible spoofing in currency markets.

"It shall be unlawful for any person to engage in any trading, practice, or conduct ... that is of the character of, or is commonly known to the trade as, ‘spoofing’" --Dodd-Frank Act Section 747 read more »