- Coscia's firm placed and then canceled orders, witness says
- Trial is first under Dodd-Frank's ban on trader spoofing
The company of the first trader to face trial on spoofing charges was found by one examiner to have placed small commodities orders followed by large ones on the other side of the trade, and then immediately cancel the big orders.
Michael Coscia’s Panther Energy Trading LLC repeated those steps 14,000 times over five to six weeks, said John Redman of ICE Futures Europe, who was called by prosecutors to testify in Chicago federal court.
Prosecutors contend Coscia placed orders he didn’t intend to fill to manipulate prices in a scheme that raked in illegal profits of about $1.4 million over three months. Coscia, indicted last year and charged with six counts of commodities fraud and six of spoofing, claims he had no intent to defraud anyone and didn’t violate the law.
The trial comes after a year of U.S. law enforcement and regulatory actions against traders who authorities allege systematically place orders they don’t intend to execute to trick the market into thinking there’s demand that doesn’t actually exist. It’s the first time jurors are being asked to apply a provision in 2010’s Dodd-Frank Act that singles out spoofing as a form of illegal market manipulation.
The trial’s outcome will potentially shape government cases against other accused spoofers, including Navinder Singh Sarao. He is fighting extradition from the U.K. to face charges in Chicago related to the May 2010 flash crash that temporarily wiped out almost $1 trillion from the value of U.S. equities.
Coscia disrupted financial markets and tricked other traders, using two software programs to place and then cancel orders in “a blink of the eye,” Assistant U.S. Attorney Renato Mariotti told jurors Monday. “He made a little money each time. He did it hundreds of thousands of times,” Mariotti said.
The new law is too vague and Coscia’s actions in 2011 didn’t match the limited examples of spoofing put out by regulators guiding market users on how they intended to enforce the statute, his lawyers said in court filings.
There are no rules on the exchanges prohibiting the placement of orders for different quantities of futures contracts on both sides of the market, Coscia contends. He also plans to show he canceled orders at a rate well under the allowed limit, according to the filing.
Coscia is wrongly accused and prosecutors have the case “all wrong,” his lawyer, Steven Peikin, told jurors in his opening statement Monday.
“Michael Coscia is no fraudster,” Peikin said. “He entered every order with the intent to trade the order.”
Jurors will have to decide whether Coscia placed orders with the intent to cancel them, which will require digging into how he set up trading software. The nine men and three women selected Monday as jurors told the judge they didn’t have an opinion on high-frequency trading and hadn’t previously heard of spoofing.
Cosica convinced U.S. District Judge Harry Leinenweber before trial that the government should be barred from introducing any evidence of earlier investigations and settlements connected to his trading activity, or the fact that other traders had complained about his behavior.
In 2013, Coscia settled civil claims by the U.S Commodity Futures Trading Commission by paying a $2.8 million fine and consenting to a one-year trading ban.
Without specifying which type of case was involved, Mariotti told jurors they would hear Coscia’s testimony from another proceeding in which he admitted that “this was his strategy.”
If convicted of spoofing, Coscia could face as long as 10 years in prison, plus a fine of as much as $1 million for each count. Each commodities-fraud charge carries a maximum sentence of 25 years in prison and a fine of as much as $250,000.
The case is U.S. v. Coscia, 14-cr-00551, U.S. District Court, Northern District of Illinois (Chicago).