Photographer: Michele Limina/Bloomberg
markets

U.S. Plans to Make Arrests, Levy Fines in Futures Spoofing Cases

Updated on
  • Three banks will pay almost $50 million to settle CFTC case
  • Government charges eight over futures-markets manipulation

Deutsche Bank AG, HSBC Holdings Plc and UBS Group AG agreed to pay about $50 million to settle civil claims of manipulating futures markets. Eight individuals were also charged for their alleged roles.

The banks settled claims from the Commodity Futures Trading Commission that the firms’ traders engaged in spoofing techniques to manipulate prices of precious-metals futures. Deutsche Bank agreed to pay $30 million; UBS, $15 million; and HSBC, $1.6 million. The banks didn’t admit or deny wrongdoing.

The bank penalties made public Monday are part of a broad U.S. crackdown on spoofing, a tactic in which traders place orders without intending to execute them to try to move prices in their favor. In parallel actions, the Justice Department announced criminal charges against eight individuals, seven of whom worked at financial institutions and commodities-trading firms.

“The defendants in these cases engaged in sophisticated schemes or trading practices aimed at defrauding individuals and entities trading on U.S. futures exchanges,” said John Cronan, the acting head of the department’s criminal division, referring to the eight individuals. “Conduct like this poses significant risk of eroding confidence in U.S. markets and creates an uneven playing field for legitimate traders and investors.”

Spoofing Is a Silly Name for Serious Market Rigging: QuickTake

Among the cases announced was a CFTC lawsuit against Andre Flotron, a former precious-metals trader at UBS, who was accused of engaging in spoofing from August 2008 through November 2013. The suit against Flotron, 53, follows his arrest in September. He was charged with conspiracy and fraud over his suspected role in manipulating the price of precious metals and released on bail. The Justice Department included Flotron in its announcement of charges Monday.

“The cases against Mr. Flotron are misguided and have no merit,” his lawyer, Marc Mukasey, said in an emailed statement. He called the CFTC’s suit “an enormous waste of taxpayers’ money” because of the pending criminal case, adding that Flotron has retired and lives in Switzerland.

Spokesmen for UBS, Deutsche Bank and HSBC declined to comment. Reuters reported the arrests and penalties earlier.

The enforcement actions extend the Justice Department’s investigations into whether bank traders conspired to rig interest-rate benchmarks and manipulate currency exchanges during the past decade. The probes, which led to guilty pleas and billions of dollars in payouts by some of the world’s biggest banks, also led prosecutors to begin investigating whether metals traders placed orders without intending to execute them. In June, former Deutsche Bank trader David Liew pleaded guilty to conspiring to manipulate futures contracts in precious metals.

In addition to the case against Flotron, the CFTC sued Jiongsheng Zhao, 30, Krishna Mohan, 33, James Vorley, 37, and Cedric Chanu, 39, without saying where they worked. The agency also filed a complaint against Jitesh Thakkar, a 41-year-old computer programmer, accusing him of designing trading software for an unnamed trader who engaged in spoofing of E-mini S&P 500 futures from January 2013 to October 2013.

The Justice Department announced charges against those six individuals as well as Edward Bases, 55, and John Pacilio, 53.

Those charged couldn’t be immediately reached for comment.

(Updates with bank fines.)
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