13 June 2018
On August 7, 2017, the U.S. Court of Appeals for the Seventh Circuit upheld the conviction of a New Jersey commodities trader under the anti-spoofing provision of the Commodity Exchange Act. The charges against trader Michael Coscia represented the first instance of a criminal prosecution for “spoofing” – a practice in which a trader places orders to buy or sell futures contracts with the intent to cancel them prior to execution, creating an illusion of market movement and influencing prices to the trader's advantage. In this instance, Coscia used computer algorithms to place the orders on a high-frequency basis, resulting in a $1.4 million personal gain in less than three months. The Court of Appeals rejected Coscia's argument that the anti-spoofing law was unconstitutionally vague, concluding that the provision provides clear notice and does not permit arbitrary enforcement. It is expected that traders will view Coscia's conviction (and the Seventh Circuit's upholding of that conviction) as an indication that prosecutors will pursue similar charges against other traders who engage in spoofing. For more information, see http://media.ca7.uscourts.gov/cgi-bin/rssExec.pl?Submit=Display&Path=Y2017/D08-07/C:16-3017:J:Ripple:aut:T:fnOp:N:2006533:S:0.