The US Department of Justice has embarked on the largest futures market criminal enforcement action in its history. The charges relate to alleged fraud and market manipulation through schemes that are colloquially known as spoofing, whereby traders entice other traders to base their investment decisions on a falsely-created perception of supply and demand.

In six cases in three federal districts, the federal prosecutorial body has charged eight people in connection for allegedly manipulating futures markets for contracts relating to precious metals, the Standard & Poor's 500, the Dow Jones Industrial Average, and NASDAQ E-mini futures. At least one of the accused - an alleged precious metals futures trader for UBS AG named André Flotron - seems to have worked for the exchange-facing arm of a private bank. Flotron allegedly conspired with other UBS precious metal traders to engage in spoofing between approximately 2008 and 2013. Some or all of the DoJ's charges against him were previously filed in the District of Connecticut.

Spoofing refers to the illegal practice of placing an order for a futures contract that the trader never intended to be executed in the first place.  These spoofed orders are often cancelled almost immediately after they are placed – frequently within seconds – and therefore are never fulfilled. Spoofed orders alter the appearance of supply and demand and manipulate otherwise efficient markets. Spoofing is intended to entice other traders to base their investment decisions on a falsely-created perception of supply and demand.  

The alleged conduct in the cases was identified and investigated through a variety of methods that included traditional 'gumshoe' detective work, co-operation from financial institutions and, as in the United Kingdom, data analysis.

One case alleges that two precious metals traders – James Vorley of the UK and Cedric Chanu, a Frenchman – participated in a scheme to commit spoofing, wire fraud and commodities fraud by placing thousands of orders in connection with more han one hundred instances of co-ordinated spoofing between 2008 and 2015. Another case charges Jitesh Thakkar (the founder and principal of Edge Financial Technologies of Chicago) with spoofing offences involving the market for E-mini futures contracts. An E-Mini futures contract is a stock market index contract that represents an agreement to buy or sell the future cash value of the S&P 500, NASDAQ, or Dow – depending on which E-Mini futures product is being traded. The DoJ alleges that Thakkar helped to write software (an automated trading programme) that his co-conspirator used to 'spoof' through the placement of thousands of S&P 500 E-mini futures contract orders, the better to prevent certain spoof orders from actually being executed by automatically moving the spoof orders to the back of the order queue.

The DoJ has also charged Jiongshen Zhao with various spoofing and fraud offences, along with making false statements to a registered entity, the Chicago Mercantile Exchange. Zhao – a trader at a proprietary trading firm located in Sydney in Australia – allegedly manipulated the S&P 500 E-Mini futures market hundreds of times between 2012 and 2016 by employing an illegal spoofing strategy.  

Another case charges Edward Bases and John Pacilio with substantive commodities fraud offences, and Bases with substantive spoofing offences that involved the precious metals futures markets. According to electronic chats cited in the criminal complaint, both defendants allegedly bragged about their ability to 'manipulate' and 'spoof' the market to their illicit advantage. This is a common theme in market manipulation and many incriminating stories have featured traders asking each other whether anybody might be listening to them.

Lastly, Krishna Mohan, allegedly a commodities trader at a proprietary electronic trading firm with locations around the world, was charged in the Southern District of Texas with commodities fraud and spoofing offences featuring an illegal spoofing strategy that involved placing orders on both sides of the market.

The Federal Bureau of Investigation did much of the detective work behind the charges and the DoJ's gratitude to the United States Postal Inspection Service for its help is yet another reminder that the concept of private correspondence is a thing of the past in the United States.