Department of Justice Broadens Aim on Spoofing Enforcement

May 03, 2018

The U.S. Department of Justice (DOJ) and the Commodity Futures Trading Commission (CFTC), in January, announced a wave of coordinated spoofing cases that the Acting Assistant Attorney General, John P. Cronan, described as the “largest futures market criminal enforcement action in Department history.” The enforcement action consisted of eight civil actions filed by the CFTC and six criminal cases brought by the DOJ. On April 25, the first of those criminal cases to go to trial, U.S. v. Flotron, ended in an acquittal for defendant Andre Flotron. However, there is little reason to believe the acquittal will deter prosecutors from bringing spoofing actions moving forward, as the DOJ has recently been vocal about their “unwavering . . . commitment to protecting the integrity of our financial markets,” while at the same time demonstrating a willingness to bring more spoofing cases with less direct – some would say weaker – evidence. Furthermore, the recent tag-team enforcement strategy from the CFTC and DOJ shows that the agencies are strengthening ties and suggests that the CFTC is increasingly confident in its ability to assess and refer spoofing cases for criminal prosecution.

This aggressive coordinated enforcement approach has important implications for both in-house and outside counsel. The CFTC’s self-touted buildout of its market surveillance program to monitor and detect archetypal spoofing patterns – coupled with the DOJ’s apparent willingness to bring criminal cases largely based on trade data alone – emphasizes the importance to market participants of having their own monitoring mechanisms and compliance programs to detect and prevent (and possibly disclose) potential violations before the regulators do. It is also increasingly clear that once the CFTC or a self-regulatory organization (such as the CME Group) approaches a firm or an employee about an apparent civil investigation, a criminal investigation may not be far behind. Legal counsel with meaningful criminal experience should be consulted in order to identify and to manage the increased risk that any civil spoofing investigation will develop into a criminal action.

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