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Government Regulation Securities Litigation White Collar Crime

“Spoofing” as Fraud: A Novel and Untested Theory of Prosecution

The DOJ has signaled its intent to pursue prosecutions for spoofing — which the law defines as “bidding or offering with the intent to cancel the bid or offer before execution” — aggressively. This article begins with a brief discussion of the elements that the government must prove to establish commodities fraud and wire fraud. It then examines recent spoofing prosecutions that raise important questions about the applicability of the traditional fraud statutes to spoofing-related activity. How the federal courts answer these open questions will have significant implications for participants in the commodities markets.

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In June 2018, we published an article discussing the government’s efforts to prosecute defendants who engage in a form of trading activity on commodity futures exchanges known as “spoofing,” which the law defines as “bidding or offering with the intent to cancel the bid or offer before execution.” See, Jodi Misher Peikin & Brent M. Tunis, “When Is a Bid or Offer a ‘Spoof’?,” Business Crimes Bulletin (June 2018). In that article, we observed that the failure of the Commodity Futures Trading Commission (CFTC) to define what specific conduct qualifies as spoofing has left market participants uncertain about when cancellation of a bid or offer crosses the line from an acceptable trading strategy to an illegal “spoof.” This ambiguity is compounded by the fact that rapid cancellation of orders is prevalent in the commodities markets. See, Richard Haynes & John S. Roberts, CFTC, “Automated Trading in Futures Markets” at 9 (2015) (“[J]ust over 50 percent of market orders are cancelled within half a second, approximately the speed of human reaction.”).

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