Two former precious metals traders settled DOJ fraud and manipulation charges (see here and here) and CFTC spoofing charges (see here and here).
The DOJ and CFTC found that Corey Flaum and John Edmonds engaged in spoofing in the precious metals market. The CFTC orders restated the definition of "spoofing" as bidding or offering with the intent to cancel a bid or offer before execution of the futures. The CFTC found that the defendants' conduct violated statutory and rule provisions prohibiting the use of manipulative or deceptive devices in connection with futures contracts, and attempted price manipulation.
Separately, DOJ charged the defendants with criminal counts of conspiracy to commit wire fraud and commodities fraud.
To settle the charges, Mr. Flaum and Mr. Edmonds agreed to refrain from any further actions that would violate Commodity Exchange Act and CFTC regulations. In addition, the CFTC reserved determination of sanctions against both individuals based upon their cooperation with a CFTC investigation and related proceedings.
Commentary Bob Zwirb
Given the dual action by DOJ and the CFTC here, entailing both criminal and civil charges, a little more transparency would seem to be in order, i.e., the agencies should disclose the extent to which the defendants either profited or caused financial harm to others. Instead, these cases present single examples of spoof trades with virtually no explanation of how much financial harm, if any, they caused.
In addition, why did these two spoofing episodes require the participation of both the DOJ and the CFTC? What was so unique about these two matters, or these two individual defendants that they required a full array of the enforcement arsenal? No one can tell from the documents.
For that matter, why are some spoofing actions subject solely to exchange SRO enforcement actions, others to CFTC actions, still others to combined SRO-CFTC actions, while some are subject solely to DOJ criminal actions, and still others (like the instant cases) to combined CFTC-DOJ actions? What standard is used to determine the number of governmental entities that need to be involved and the level of monetary and non-monetary sanctions that is required to deter? Further, is it really necessary to charge individuals who engage in spoofing also with price manipulation given the de minimis movement in prices in such cases?
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