DOJ Charges Three Traders Under RICO In Alleged Spoofing Scheme
On September 16, 2019, an indictment was unsealed revealing that the Department of Justice (“DOJ”) has charged three traders at a global banking and financial services company with conspiracy to engage in a pattern of racketeering activity under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), and other federal crimes, by allegedly engaging in a scheme to manipulate prices for precious metals futures contracts over an eight-year period. Indictment, Case No. 19-cr-669 (N.D. Ill. Aug. 22, 2019). The same day, the Commodity Futures Trading Commission (“CFTC”) brought a parallel civil suit against two of the traders. See Complaint, Case No. 19-cv-6163 (N.D. Ill. Sept. 16, 2019). According to the DOJ and the CFTC, the traders engaged in the unlawful practice of “spoofing” by placing orders to buy or sell futures contracts with the intent to cancel the orders before execution and influence the prices of those futures contracts. While the DOJ and CFTC have brought a number of spoofing charges in recent years, it is unclear why the DOJ saw fit to bring this set of charges under RICO—an aggressive move that the DOJ may use to try to paint with a broader brush in introducing evidence at trial.
Defendants are accused of placing thousands of deceptive commodities orders from May 2008 to August 2016 in an attempt to artificially affect prices and profit by deceiving other market participants. For instance, the DOJ alleged that defendants placed deceptive orders that were fully visible to counterparties but placed with the intent to cancel before execution; that defendants manipulated the prices of commodities in which they held or sold barrier options, a type of option triggered when the underlying commodity reached a particular price; and that defendants engaged in “layering,” whereby multiple deceptive orders at different prices were placed in rapid succession in an attempt to influence the market. According to the indictment, as a result of the traders’ conduct, the market was misled about the genuine supply and demand for precious metals futures contracts, resulting in millions of dollars of profit for defendants’ employer and tens of millions in losses for the counterparties to the spoofed trades.
According to the DOJ, the traders thus knowingly conspired to violate the RICO statute by forming an enterprise and participating in a pattern of multiple spoofing acts, each of which individually constituted acts of bank fraud and wire fraud taken as part of a racketeering conspiracy. Cases involving RICO are rare in the white collar context in general, and this indictment represents the first time defendants accused of spoofing have been charged under RICO.
Brian Benczkowski, Assistant Attorney General for the DOJ Criminal Division, stated that the alleged spoofing scheme is “precisely the kind of conduct that the RICO statute is meant to punish,” yet it is far from clear what prompted that view. Countless other white collar cases involve repeated individual acts of alleged wire or bank fraud, and the DOJ typically charges a single conspiracy and some number of individual substantive counts. Thus, this indictment raises more questions than it answers, and the case is likely to be a closely watched one.