Wednesday, June 23, 2021

Deutsche Bank spoof schemer sentenced to a year in prison

By Amanda Maine, J.D.

A precious metals trader at a London office of Deutsche Bank has been sentenced by a federal judge to 12 months and one day in prison following his conviction for wire fraud for his role in a spoofing scheme aimed at defrauding other precious metals futures traders on the Chicago Mercantile Exchange (CME).

Alleged scheme. The government alleged that James Vorley, a trader in a London branch of Deutsche Bank, and his accomplice Cedric Chanu, based in Singapore, placed "spoof" orders on the CME’s Commodity Exchange (COMEX) for precious metals futures. The traders intended to cancel the trades before they were executed to create a false impression of supply and demand in the market and induce other traders to execute trades on the perpetrators’ opposite-side orders, according to the DOJ. The defendants were charged with wire fraud, a "novel" approach to obtaining spoofing convictions, according to some court observers (see Securities Regulation Daily¸ March 23, 2021).

Following a jury trial, both defendants were convicted on several counts of wire fraud and acquitted on other counts of wire fraud, as well as being acquitted on a charge of conspiracy to commit wire fraud affecting a financial institution. Both defendants had challenged their convictions, asserting that the government had failed to present all the evidence needed to show wire fraud. The government’s wire fraud argument rested on an assertion that the orders were fraudulent because an order on an exchange carries an implicit representation that the party placing the order intends the order to be executed, which was challenged by the defendants.

The district court had rejected the defendants’ argument, finding that there was sufficient evidence supporting the jury’s conclusion that Vorley and Chanu "repeatedly and purposefully" engaged in a pattern of placing large, visible spoof orders opposite their primary, "iceberg" orders, and that their intent in doing so was to falsely signal to other market participants the arrival of a significant buying or selling interest and induce other traders to execute against their iceberg orders at more favorable prices.

The judge had also determined that the defendants’ scheme was premised on depriving their counterparties of economically valuable information—that is, that their orders did not actually correspond to the arrival of new buyers or sellers or a shift in supply and demand for futures contracts. As such, the defendants’ conduct fell within the wire fraud statute’s definition of a "scheme to defraud," the judge stated.

Sentence. Vorley was sentenced to 12 months and one day in prison. Chanu’s sentencing hearing is scheduled for June 28.

The case is No. 18-cr-00035.