A U.S. District Judge for the Northern District of Illinois declared a mistrial after jurors were unable to reach a unanimous verdict concerning an alleged commodities spoofing scheme related to the 2010 Dow Jones "Flash Crash."
According to the Complaint, Jitesh Thakkar, the founder and principal of Edge Financial Technologies, Inc., allegedly (i) created an automated program to reduce the risk that an order intended to spoof other traders would be executed, and (ii) gave the automated program to another trader who used it to place spoof orders.
The trader who used the automated program in sending spoofing orders had previously pled guilty to wire fraud and spoofing on the Chicago Mercantile Exchange. Mr. Thakkar claimed that he did not know what the trader intended to do with the software.
Commentary / Bob Zwirb
Theoretically, those who provide traders with the technological means to engage in spoofing may be legitimate targets for scrutiny. But proving they actually conspired with or aided and abetted the spoofer requires unambiguous evidence in a criminal case, something that was apparently lacking here notwithstanding the DOJ's claim that the defendant developed "a customized, automated program" designed to mitigate the risk that certain spoof orders would be executed. While the defendant prevailed here, he is not out of the woods as the CFTC filed a companion civil case that has yet to be litigated, and where the burden of proof is substantially lower.
These types of cases, where the government pursues computer programmers, however, should give those in the FinTech sector the heebie-jeebies, because such prosecutions are prone not only to overreach by the government, but also to inflated values of harm, a lethal combination in today's hyperactive enforcement environment. And this legal vulnerability is accentuated where systems developed in that sector are used for tasks they were not specifically designed for.
Nevertheless, this case illustrates that some or even a substantial number of spoofing cases would fail if they went to trial with competent defense counsel. But most of the time the CFTC or DOJ "wins" because these cases are settled.
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