The DOJ and CFTC charged several precious metals traders with manipulating the markets for precious metals futures contracts.
According to the DOJ, three precious metals traders, including one formerly employed by an undisclosed U.S. bank ("Bank A"), engaged in a "multi-year market manipulation racketeering conspiracy." Between approximately May 2008 and August 2016, the defendants allegedly engaged in the spoofing of gold, silver, platinum and palladium futures contracts. Additionally, the DOJ found that the defendants defrauded clients who had bought or sold "barrier options" by manipulating the price towards a point that would make Bank A money on the option (i.e., barrier running) or away from a point at which Bank A would lose money on the option (i.e., barrier defending).
Separately, the CFTC charged two of the traders with attempting to manipulate market prices and create artificial prices through spoofing in order to fill their orders sooner, at better prices, or in a larger quantity.
Additionally, two co-conspirators and former Bank A precious metals traders pleaded guilty to spoofing charges (see DOJ information here and here) (see CFTC order here).
Commentary
In this action, the combined forces of the CFTC and DOJ have raised the stakes for traders who engage, or are alleged to have engaged, in spoofing. Heretofore, traders similarly situated had been subject to civil and/or criminal liability by the exchanges, the CFTC, and the DOJ. What's different here is that the alleged spoofers are also being charged with racketeering offenses under a statute originally intended for organized crime. Moreover, if the defendants plead (as two already have) or are found guilty, they could then face follow-up civil RICO charges brought by their counterparties, subjecting them to treble damages.
To say that the employment of such heavy-duty legal arsenal is meant to deter is obvious. But when such weapons are applied to garden variety acts of trading fraud, a legitimate policy question arises as to whether the regulators are going beyond the intended use of the statute. See Paul H. Rubin & Robert Zwirb, The Economics of Civil RICO, 20 U.C. Davis L. Rev. 883, 894-95, 907 (Summer 1987).
This policy concern is particularly significant because the predicate criminal act, spoofing, which involves placing a bid or offer with the intent to cancel before execution, is defined such that a literal application can capture activities that are benign.
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