A proprietary trading firm and its founder settled CFTC charges (see here and here) for engaging in spoofing.
According to the CFTC, the founder engaged in spoofing trades involving the E-mini S&P 500 futures contracts on the Chicago Mercantile Exchange. The scheme, according to the CFTC, involved sophisticated trading maneuvers where the founder would "flip" his bias from sell to buy and/or cancel his orders to create the false impression of a sudden decline in either buying or selling interest. The CFTC found that the trading firm engaged in spoofing "by and through one of its traders."
To settle the CFTC charges, the founder agreed to (i) cease and desist from further violating CFTC rules, (ii) pay a civil monetary penalty of $750,000, (iii) a nine-month suspension and (iv) comply with specific provisions and undertakings outlined in the Order. Separately, the trading firm agreed to (i) cease and desist from further violating CFTC rules, (ii) pay a civil monetary penalty of $1,750,000 and (iii) comply with specific provisions and undertakings outlined in the Offer.
Commentary
Just last week, the CFTC's enforcement director gave a major speech extolling the benefits of working with "our criminal counterparts" at the Department of Justice to "enhance our ability to hold both individual and corporate wrongdoers accountable, and to increase the deterrent effect of our actions." At about the same time, DOJ, assisted by the CFTC (which brought its own parallel civil enforcement action), announced a criminal racketeering action against three traders for spoofing. Here, notwithstanding the fact that the respondents engaged in spoofing conduct "on more than a thousand occasions," the CFTC is acting alone.
That raises the question as to what is the standard for conducting parallel enforcement actions when it comes to spoofing. Why are some spoofing activities addressed only by exchange SROs? Why others only by the CFTC? Why do some require parallel CFTC/DOJ actions? Why are some spoofing actions subject only to civil enforcement, while others to criminal enforcement? And why are some traders who engage in this activity subject to draconian criminal RICO enforcement? These questions are important from the standpoint of basic fairness (particularly in regard to an activity where the line of impermissible conduct is not clear) because while some traders are subject to a single form of jeopardy, others are to double, or even triple jeopardy - not in the legal, but practical sense - and no one knows why (other than that some defendants are luckier than others).
What is the standard for choosing which type of enforcement action is called for, who should conduct it, and what level and how many sets of sanctions should be imposed? Is it based upon the level of wrongdoing, or who is doing the wrongdoing, or is it ad hoc?
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