Monday, August 17, 2020

CFTC agrees to dismiss Chicagoland software developer Jitesh Thakkar as part of spoofing case settlement

By Brad Rosen, J.D.

With the filing of an agreed motion with court, the often contentious and hard-fought litigation between the CFTC and software developer Jitesh Thakkar, and his company Edge Financial Technologies, Inc., appears to be heading towards a peaceful resolution. According to the court filing, charges against Thakkar will be dismissed with prejudice. Meanwhile, the corporate defendant has agreed to be subject to a consent order of permanent injunction which includes findings, an order of disgorgement, and penalties totaling $72,600 (CFTC v. Thakkar August 13, 2020).

A legal journey coming to an end. Thakkar was charged and tried criminally for aiding and abetting the spoofing activities of convicted felon, Navinder Sarao, the purported perpetrator of the infamous 2010 flash crash. Thakkar and Edge had provided software consulting services to him. In April 2019, a jury voted 10-2 to acquit Thakkar in connection with the software consulting services provided to Sarao. Rather than retry Thakkar, the DOJ dismissed the outstanding charges against him.

Along with the DOJ’s criminal charges, Thakkar and Edge were also charged in a parallel proceeding by the CFTC in January 2018. That matter was stayed during the pendency of the criminal matter. In September 2019, the CFTC resumed the enforcement action against Thakkar with vigor with the CFTC seeking extensive discovery even though the agency had access to a massive trove of documents from the criminal matter. Then in January 2020, the parties filed a joint motion informing the court that they were close to resolving the case and had agreed on proposed settlement terms. The recent filing is the first substantive follow up to the January filing.

Dismissal of Thakkar. The proposed agreed order of dismissal prepared for the court’s entry provides for the CFTC’s claims against defendant Thakkar to be dismissed with prejudice, with each party to bear its own fees and costs. Additionally, Thakkar will waive any claims he might have under the Equal Access to Justice Act relating to or arising from the CFTC’s enforcement action.

Findings and sanctions. The proposed consent order which relates to Edge includes the following:
  • Findings that essentially track the allegations of the CFTC complaint. In particular the order finds that Edge programmed a custom software application that included a Back-of Book function that Navinder Sarao (referred to as "Trader A" in the order) used to engage in spoofing and employ a manipulative and deceptive device, scheme, or artifice to defraud;
  • a finding that Edge programmed the Back-of-Book function for Sarao knowing that he planned to use the Back-of-Book function to engage in spoofing and to employ a manipulative and deceptive scheme to inject false information into the market about supply and demand for the E-mini S&P futures contract; and
  • an order for Edge to pay $24,200 in disgorgement which is characterized as the "gains received" in connection with the violations. Additionally, the company is ordered to pay a $48,400 civil monetary penalty.
Permanent injunctions. The consent order also provide that Edge is permanently enjoined from aiding and abetting violations of section 4c(a)(5)(C) of the of the CEA which relates to spoofing, as well as from aiding and abetting violations of CFTC Regulation 180.1(a)(1) and (3), which relates to the use of a manipulative and deceptive device, scheme, or artifice to defraud. According to the order, Edge is also enjoined from engaging in the following activities:
  • Selling the custom software application Edge developed for Sarao, or any application that includes the Back-of-Book function developed as part of that custom software application;
  • possessing the custom software application Edge developed for Sarao, including the source code for that custom software application; and
  • for a period of two years, providing any services or receiving any funds which relate to computer programming for any person or entity for the purpose of trading on or subject to the rules of any registered entity or entering into any transactions involving "commodity interests."
Additionally, the order specifically provides that Edge is permitted to sell or transfer any of its assets, including software and intellectual property (except for the application developed for Sarao or software which contains a Back-of-Book function) to a third party as part of the company’s wind down of operations.

With the resolution of this matter, Jitesh Thakkar’s long, strange, and at times tortious legal odyssey appears to be coming to an end.

The case is No. 1:18-cv-00619.