U.S. District Court Orders Former Precious Metals Trader To Pay Penalty For Spoofing

The U.S. District Court for the District of Connecticut ordered a former precious metals trader (the "trader") to pay a $100,000 civil monetary penalty for spoofing and partaking in a deceptive scheme.

The CFTC Order arose from a CFTC complaint charging that the trader placed orders in the precious metals futures market with the intention of canceling the orders prior to execution (i.e., spoof orders). According to the CFTC, the trader intended for his spoof orders "to induce other market participants to transact on smaller, 'Genuine Orders' that [he] placed on the opposite side of the market." The trader scheme, according to the Order, was to send false signals of supply to the market "to create the misimpression that the price would likely decline and lead market participants into transacting on his Genuine Orders to buy." The CFTC determined that the trader's misconduct violated the CEA and CFTC rules.

The CFTC Order also imposed a one-year trading and registration ban against the trader.

Commentary / Bob Zwirb

Two aspects of this settlement are worth noting. First, the CFTC's use of a gag order to prevent the defendant, who neither admitted nor denied liability, from "mak[ing] any public statement denying" liability, or even "creat[ing] the impression that the Complaint and/or this Consent Order is without a factual basis." Second, the CFTC's use of CEA Section 6(c)(1), which makes it unlawful to engage in "any manipulative or deceptive device or contrivance . . . "

Both of these provisions are currently subject to legal challenges that could affect their use in the future. First, the use of a similar gag order regularly employed by the SEC in its enforcement settlements is currently being challenged by the CATO Institute...

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