Fraud or Bluff? Ex-Deutsche Bank Traders on Trial for Spoofing

Fraud or Bluff? Ex-Deutsche Bank Traders on Trial for Spoofing

September 15, 2020

Federal prosecutors told jurors on Tuesday that two former Deutsche Bank AG traders manipulated precious-metals markets to reap illegal profits. Defense lawyers claimed the techniques the men used were lawful and akin to competitive bluffing in a high-stakes card game.

A Chicago jury will decide if the trades made by James Vorley and Cedric Chanu were criminal. Their trial began Tuesday on charges of fraud and conspiracy in the latest “spoofing” case brought by the U.S. since the so-called “flash crash” a decade ago. Vorley and Chanu are accused of issuing multiple trade orders between 2008 and 2013 that they canceled before executing in a bid to influence prices.

“They participated in a fraud designed to help themselves and their bank,” prosecutor Leslie Salba Garthwaite told the jury. Vorley and Chanu “turned the market on its head” by distorting supply and demand, she said.

“It’s a trick,” Garthwaite said of their spoofing methods, which she likened to “whispering buy and shouting sell.”

Read More: Spoofing Is a Silly Name for Serious Market Rigging

Defense attorneys disputed the government claims, telling jurors that canceling orders is an accepted strategy in the competitive world of high-frequency trading, where computers use algorithms to execute massive trades in milliseconds.

“Every order James placed was legitimate” and in full compliance with Deutsche Bank’s compliance department, said Roger Burlingham, Vorley’s lawyer. “The prosecutors’ theory is that when James placed orders, he was telling the super computer what was in his mind,” Burlingham said.

Chanu “honored every one of his orders that was accepted in the market by any other player,” said his attorney, Michael McGovern.

‘Hide Your Cards’

Like any other competition, precious-metals futures trading is a competition that involves some deception, McGovern said. “In any game of cards, whether gin rummy, bridge or poker, you’re allowed to hide your cards” and bluff to win, he said.

McGovern told the jury that Vorley and Chanu weren’t charged with spoofing, but that prosecutors are using the word as a distraction because they can’t prove fraud.

Among the prosecution witnesses scheduled to testify at the trial are former Deutsche Bank trader David Liew, who worked with Vorley and Chanu.

Since anti-spoofing laws were passed under the Dodd-Frank financial reforms in 2010, federal prosecutors have stepped up criminal cases and the U.S. Commodity Futures Trading Commission initiated more civil complaints.

For all of the individuals charged, only three have stood trial so far and the results are decidedlymixed.

In 2015, Michael Coscia was convicted in Chicago and sentenced to three years in prison. In 2018, Andre Flotron was acquitted after a federal judge in Connecticut threw out most of the charges saying the government should have brought the case in Chicago, where the trading occurred. Last year, the case against Chicago computer programmer Jitesh Thakkar, the first non-trader charged under anti-spoofing laws, ended in a mistrial.

The case is U.S. v. Vorley 18-cr-35, Northern District of Illinois (Chicago).

Source: Read Full Article