CHICAGO, Nov 4 (Reuters) - The top U.S. commodities regulator warned traders on Wednesday that he will aggressively pursue cases of market manipulation, a day after federal prosecutors won a landmark victory over the banned practice known as “spoofing.”
“If they’re entering a lot of orders without the intention to consummate, then they should go talk to their lawyers,” Timothy Massad, chairman of the Commodity Futures Trading Commission, told reporters on the sidelines of an industry conference in Chicago.
The advice from Massad highlighted the significance of the conviction of high-frequency trader Michael Coscia in the first U.S. prosecution under a new “anti-spoofing” law.
Lawyers and analysts say the verdict clarifies the definition of spoofing, in which traders place orders without intending to execute them to create the illusion of market demand. As a result, they expect the government to be more aggressive in pursuing cases against traders.
A jury in Chicago on Tuesday took about an hour to find Coscia, owner of New Jersey-based Panther Energy Trading, guilty of six counts of commodities fraud and six counts of spoofing after a seven-day trial.
He was accused of entering large orders that he never intended to execute into futures markets in 2011. He canceled most of the large orders and made money executing smaller trades, prosecutors said.
Massad declined to say whether he believed Coscia should be sent to jail.
Each count of commodities fraud carries a maximum sentence of 25 years in prison and a $250,000 fine. Each count of spoofing carries a maximum sentence of 10 years in prison and a $1 million fine.
Coscia’s prosecution was the first under an anti-spoofing provision that was added to the Commodity Exchange Act by the 2010 Dodd-Frank financial reform.
“We’ve been very aggressive in going after situations that we feel are violations of the law and implementing our new authority,” Massad said. “We will continue to do that.”
Coscia spoofed markets run by exchange operators CME Group Inc and Intercontinental Exchange Inc.
Jeff Sprecher, chief executive of ICE, declined to comment on the case. CME Chief Executive Phupinder Gill said he did not know the specifics of the case.
“Spoofing is against the rules at the CME,” Gill said.
Coscia’s case is U.S. v. Coscia, 14-cr-00551, U.S. District Court, Northern District of Illinois. (Editing by Matthew Lewis)