High-frequency trader, Coscia, found guilty of commodities fraud in first US spoofing case
High-frequency trader, Michael Coscia, has been found guilty of commodities fraud and spoofing in the US government's first criminal prosecution of the manipulative trading practise, causing concerns that this may energise prosecutors to pursue market manipulation cases and spur some high-speed traders to review their strategies, in which orders are at times executed or cancelled within moments after they are entered. Coscia's firm, Panther Energy Trading, has less than 10 employees, however, he "entered more large orders than anyone else in the world" in nearly a dozen CME Group markets such as corn and soybeans to gold, using two algorithmic trading programmes; he also traded in markets run by Intercontinental Exchange.  CME and ICE have declined to comment on the verdict.

A jury has convicted a high-frequency trader of commodities fraud and “spoofing”, in the US government’s first criminal prosecution of the banned trading practice.

The verdict in the trial of Michael Coscia, owner of New Jersey-based Panther Energy Trading, may prompt prosecutors to pursue market manipulation cases and spur some high-speed traders to review their strategies, in which orders are sometimes executed or canceled within milliseconds after they are entered.

“This is the clarity that people have been looking for – what exactly is spoofing, what defines it,” said Trace Schmeltz, a lawyer specialising in white-collar crime at the US-based law firm Barnes & Thornburg, who was not involved in the case.

Coscia was accused of entering large orders into futures markets in 2011 that he never intended to execute. His goal, prosecutors said, was to lure other traders to markets by creating an illusion of demand so that he could make money on smaller trades, a practice known as spoofing.

Steven Peikin, a lawyer for Coscia, said he was disappointed by the verdict. “We believe this case presents many novel and complex issues, and Mr Coscia intends to pursue all of his legal options.”

Coscia took the stand in his own defence to deny wrongdoing. He testified that he intended to trade every order that he entered. Prosecutors said he illegally earned $1.4m (£900,000) in less than three months in 2011 through spoofing.

“The defendant’s trading activities disrupted the markets in his favour and against legitimate traders and investors,” said Zachary Fardon, US attorney for the northern district of Illinois.

The trial spanned seven days, but the jury in Chicago convicted Coscia on six counts of commodities fraud and six counts of spoofing, all of the charges he had faced, after deliberating for just about an hour.

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 $1m fine. A sentencing hearing was set for next year.

The verdict came as futures traders and executives from around the world gathered in Chicago for an annual industry conference.

“Investors are better off when spoofers who prey on high-frequency traders are brought to justice,” said Bill Harts, chief of the Modern Markets Initiative, a group representing high-frequency and algorithmic traders.

Coscia’s firm had fewer than 10 employees. However, he “entered more large orders than anyone else in the world” in nearly a dozen CME Group markets ranging from corn and soybeans to gold after he began using two algorithmic trading programs in August 2011, prosecutors said during the trial.

Coscia also traded in markets run by Intercontinental Exchange. CME and ICE declined to comment on the verdict.

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.

In April the US Justice Department and the US Commodity Futures Trading Commission brought criminal and civil spoofing charges against Navinder Sarao, a London-based trader accused of market manipulation that contributed to the May 2010 “flash crash”. Sarao has denied the allegations.