The CFTC announced enforcement actions against three banks and six individuals for spoofing at the end of January. The three banks, Deutsche Bank, UBS, and HSBC, were charged with spoofing in precious metals futures contracts trading on the Commodity Exchange, Inc. (COMEX).
The fine against Deutsche Bank was the largest imposed by the CFTC to date for spoofing-related misconduct. The cases were investigated and filed by the CFTC Enforcement Division’s Spoofing Task Force, a new coordinated effort to handle this type of market manipulation.
Deutsche Bank and a subsidiary agreed to pay a $30 million civil monetary penalty. UBS AG agreed to pay a $15 million civil monetary penalty. The HSBC Securities (USA) Inc. involved the conduct of one trader in the New York office and HSBC agreed to pay a $1.6 million civil monetary penalty.
A statement by CFTC Director of Enforcement James McDonald indicated that the UBS self-reported the misconduct and that the fine for each of the banks would have been substantially higher if not for their substantial cooperation.
Spoofing is a type of market manipulation through technology that uses electronic and algorithmic trading to inject false information into the market that distorts prices and tricks others into trading at the manipulated prices. The anti-spoofing provision in the Dodd-Frank Act made it illegal to bid or offer with the intent to cancel the bid or offer before execution in the commodities market. The SEC has had the authority to punish spoofing through a civil fine since the 1930s.
The civil complaints against the individuals involved three cases of spoofing for major banks, two individuals who engaged in spoofing at proprietary trading firms, and one individual (as well as the company) that built a program designed to spoof the market. The market manipulation happened in some of the most heavily traded futures contracts in the world.
McDonald renewed the CFTC’s commitment to facilitate electronic trading and other new market opportunities while holding wrongdoers accountable and deterring future misconduct. This includes individual actions against those who teach others how to spoof, build tools designed to spoof, and otherwise aid and abet wrongdoing.
Spoofing has been an area of focus at the CFTC over the past few years as it implemented the Dodd-Frank Act and began bringing civil and criminal enforcement actions. The $46.6 million in settlements, from the January actions, is the largest to date.
There was no mention in the press release about how the CFTC came to be aware of the misconduct by DB and HSBC. The CFTC will soon issue Notices of Covered Action alerting any CFTC whistleblowers to file a claim for a reward. If a whistleblower alerted the government or provided substantial assistance during the investigation, the individual may be eligible for a reward of between 10 and 30 percent of the fine.
If you have evidence of a bank division or other trading professional engaged in spoofing of the futures or commodities markets, call McEldrew Young Purtell Merritt at 1-800-590-4116 to speak to a whistleblower attorney about reporting it.