05 November 2015

Son of a Bitch! They Actually Got a Conviction!

A high frequency trader has been convicted of stock fraud for spoofing:
Panther Energy trader Michael Coscia has been found guilty in a high-profile market-manipulation trial in Chicago.

His crime? Spoofing.

It's a funny-sounding term for the practice of making and cancelling bets in a way that can push prices around.

It's what alleged "Flash Crash" trader Navinder Singh Sarao was accused of earlier this year.
Spoofing investigations have actually become quite a trend at the Justice Department, the Securities and Exchange Commission, and other regulators.

But Coscia is the first person to be found guilty of spoofing since it was forbidden under the 2010 Dodd-Frank Act, and his conviction shows that a key defense against the charge may not be effective.

Coscia was indicted last year and charged with multiple counts of commodities fraud and spoofing. Prosecutors say the Chicago-based high-frequency commodities trader defrauded the market to make some $1.6 million in illegal profits.

His lawyers tried to prove that the anti-spoofing law is "hopelessly vague, and its criminal enforcement would violate Michael Coscia's right to due process of law."

They didn't succeed.


The tactic was outlawed in the 2010 Dodd-Frank regulation, but, as with other forms of fraud, it's hard to prove the trader's intent — in this case, the intent to cancel the order. Prosecutors must prove the trader didn't change his or her mind for legitimate reasons after placing the trade.

High-frequency-trading technology has made it even easier than before.

"They are truly done in the blink of an eye, and it's designed to take advantage of the algorithms that look for price disparities in the market," said Henning. "Spoofing is signaling. I put in a small order and then a real big one, and I'm hoping the big one attracts you, and then you'll throw my small one. And then I just dump the big one."
Spoofing is when a trader puts in an order for a massive trade, and then they bet on the other side of the market move that it generates, and then they cancel the bid, making a small profit. ……… over ……… and over ……… and over again.

One does wonder why it has taken them 5 years to actually convict someone under the "new" law.

My guess is that the fact that Eric "Place" Holder is no longer attorney general might have something to do with the five years of inaction.


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