Trader Accused of Bait-And-Switch as Spoofing Trial Ends

  • Coscia lawyer argues strategy wasn't criminal, just different
  • Trader faces as long as 25 years in U.S. prison if convicted

Unwitting commodities traders were “caught in a bait-and-switch scheme” masterminded by Michael Coscia as he sought to manipulate markets via “spoofing,” U.S. prosecutors said at the end of the first trial over the banned tactic.

Coscia, 53, countered that his trading strategy was merely different, not illegal.

The head of Panther Energy Trading LLC is accused of manipulating prices by placing a small order on one side of the market and then large orders on the other. Once the small one was executed, he canceled the larger orders, making a total of $1.4 million on thousands of such trades in 2011. Prosecutors allege he never intended to trade the large orders, a violation of the 2010 Dodd-Frank Act.

“The evidence of his guilt is overwhelming,” Assistant U.S. Attorney Sunil Harjani said in closing arguments Tuesday in Chicago federal court. Coscia entered “large orders with the intent to cancel them. That’s called spoofing and it’s illegal.”

Coscia placed real orders that were trade-able and never reneged on any of them, his lawyer, Karen Patton Seymour, responded in her closing argument. Prosecutors spent an “enormous amount of time” trying to show that Coscia’s trading strategy was different from that of other traders.

“We don’t dispute how Michael Coscia’s strategy worked. We don’t dispute that Michael Coscia placed more large orders than other high-frequency traders,” Seymour told jurors. “There is nothing wrong or unlawful about having a different strategy.”

The eight-man, four-woman jury, which includes a chef, a pediatrician and a teacher, is set to decide on six counts of commodities fraud and six counts of spoofing in the case presided over by U.S. District Judge Harry D. Leinenweber. If convicted, Coscia faces as long as 25 years in prison on the most serious counts.

Six Days

The trial included six days of testimony from witnesses including Coscia. Defense lawyers contend Coscia didn’t do anything wrong because he didn’t break futures exchange rules on the size of the orders.

Coscia, who used to trade on the floor of the New York Mercantile Exchange, testified he in his own defense that he intended to trade on every order he placed. His orders “improved the market for everyone,” he told the jury.

Rebuttal

In his closing arguments, Harjani sought to rebut Coscia’s testimony, saying simply that “he took the stand and he lied to you.”

The witnesses called by the government included a programmer who wrote the code for Coscia’s trading algorithms, a Federal Bureau of Investigation agent who probed his trading activity and representatives of trading firms who said they were victims of his trading strategy.

One expert called by defense lawyers said Coscia’s cancellation rate for large orders during a week in September 2011 was lower than that of other high-frequency trading firms and the rate of orders filled was larger.

The case is U.S. v. Coscia, 14-cr-00551, U.S. District Court, Northern District of Illinois (Chicago).

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