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Former precious metals traders convicted of spoofing

On Behalf of | Mar 21, 2023 | Government Regulations

Two former Wall Street traders from the New York area were sentenced on March 9, 2023, to one year and one day in prison for their scheme to manipulate the precious metals market. According to the Department of Justice, which prosecuted the case, the former senior traders for Deutsche Bank and Bank of America engaged in a multiyear spoof order scheme in precious metals futures markets by placing orders they had no intention to fill.

The two men also taught others how to spoof. Their sentence follows a 2021 conviction for wire fraud and conspiracy charges. Their employers paid $25 million in penalties in 2019.

This recent conviction is not the first to involve spoofing. Other recent notable cases include J.P. Morgan Securities, which in 2020 admitted to a billion-dollar spoofing scam by eight traders. It paid a $35 million settlement and was slapped with other penalties.

How spoofing works

In placing the orders, the futures market prices would go up or down, to the benefit of the spoofers and their employer, by creating the illusion that demand for a security was up or down. Spoofers used to do the work by hand but now might rely on algorithms to place and cancel orders. This activity has been illegal since the Dodd-Frank Act outlawed it in 2010. The SEC also has rules and regulations related to spoofing. In addition, these actions defrauded other traders on the Commodities Exchange and the New York Mercantile Exchange. To date, 20 traders have been convicted for spoofing.