November 3, 2015 / 8:32 PM / 2 years ago

First U.S. 'spoofing' case highlights trader greed -prosecutors

CHICAGO, Nov 3 (Reuters) - Greed drove high-frequency trader Michael Coscia to mastermind an illegal bait-and-switch scam in commodity markets, U.S. prosecutors said on Tuesday at the end of the first criminal trial over the manipulative strategy known as “spoofing.”

A jury will decide the outcome of the case, which is expected to shape the prosecution of other high-speed traders.

Coscia, the owner of New Jersey-based Panther Energy Trading, is accused of entering large orders into futures markets in 2011 that he never intended to execute. His goal, prosecutors said, was to lure other traders to markets by creating an illusion of demand so that he could make money on smaller trades, a practice known as spoofing.

“The motive is money. The motive is greed,” said Sunil Harjani, an assistant U.S. attorney.

Last year, the U.S. government indicted Coscia, 53, on six counts of commodities fraud and six counts of “spoofing.”

Coscia lied under oath when he testified during the week-long trial that he wanted to trade every order that he entered, Harjani said. Instead, Coscia had computer algorithms programmed to cancel the large orders, Harjani said in his closing argument.

Coscia tried to trick the jurors “just like he did with the other traders” in the futures markets, Harjani said.

Harjani asked jury members to use their common sense to determine that Coscia did not intend to trade his large orders.

“You can’t want something and cancel it at the same time,” he said.

During the trial, prosecutors have worked to explain the complex world of high-frequency traders, where orders can be executed within milliseconds.

Coscia placed real orders in the markets that he intended to trade, said his lawyer Karen Seymour of the firm Sullivan and Cromwell.

Seymour denied that Coscia had tried to create an illusion with his large orders. Other traders erred if they misread what was happening in the markets, she said.

“Michael didn’t do anything wrong,” Seymour said.

Coscia’s indictment marked the first U.S. prosecution under an anti-spoofing provision that was added to the Commodity Exchange Act by the 2010 Dodd-Frank financial reform.

In April, the U.S. Justice Department and the U.S. Commodity Futures Trading Commission brought criminal and civil spoofing charges against Navinder Sarao, a London-based trader accused of market manipulation that contributed to the May 2010 “flash crash.” Sarao has denied the allegations.

Coscia’s case is U.S. v. Coscia, 14-cr-00551, U.S. District Court, Northern District of Illinois. (Reporting by Tom Polansek; Editing by Andrew Hay)

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