Wednesday, July 14, 2021

Appeals court upholds Coscia spoofing conviction despite attorney conflict

By Anne Sherry, J.D.

The Seventh Circuit declined to order a new trial or vacate the conviction of Michael Coscia, who in 2014 became the first person charged in a federal criminal "spoofing" prosecution. Coscia failed to convince the court that data discovered post-trial would have made a difference in the outcome or that subsequent prosecutions of other traders belied the government’s arguments that Coscia’s conduct was unique. The court did find "cause for concern" in the fact that Coscia’s counsel represented one of the government’s witnesses, but concluded that this conflict did not prejudice Coscia or affect his attorney’s performance at trial (U.S. v. Coscia, July 12, 2021, Ripple, K.).

As added by the Dodd-Frank Act, Commodity Exchange Act Section 4c(a)(5)(C) prohibits the disruptive trading practice of spoofing, defined as conduct "of the character of, or is commonly known to the trade as, ‘spoofing’ (bidding or offering with the intent to cancel the bid or offer before execution)." In the first criminal prosecution of the statute, Coscia was convicted by a jury in 2015 of six counts each of spoofing and commodities fraud and was sentenced to three years in prison. Coscia, as the manager of Panther Energy Trading, had designed two computer programs to implement a spoofing strategy and had a computer programmer create the software.

Coscia moved in the district court for judgment of acquittal and for a new trial, both of which the district court denied. The Seventh Circuit affirmed on direct appeal, and the Supreme Court denied certiorari. The instant ruling concerns Coscia’s appeal of the district court’s denial of a second motion for a new trial and a motion to vacate his conviction. Coscia argued that a new trial is warranted because of new evidence demonstrating errors in trading data presented to the jury and because subsequent indictments against other traders undercut prosecutors’ characterization of Coscia’s conduct as unique or an outlier. His argument for vacating his conviction is that his trial counsel, Sullivan & Cromwell, provided ineffective assistance of counsel due to an undisclosed conflict of interest with several government witnesses.

New evidence. In requesting a new trial, Coscia pointed to data that the exchanges on which he traded, ICE and CME, disclosed after the trial. According to Coscia, the data contradicted charts presented to the jury to demonstrate the rates at which Coscia filled and canceled orders. The court, however, found that Coscia already had the data underlying most of the charts and that the errors that were revealed in the new data were de minimis. Even assuming the new evidence could not have been discovered sooner, Coscia failed to carry his burden of proving the materiality of the evidence by demonstrating that it seriously called into question the jury verdict. The evidence would only have served to impeach some of the government’s witnesses, which does not warrant a new trial given the strength of the remaining evidence.

Coscia also argued that subsequent spoofing prosecutions rendered false the government’s characterization of him as "unique" and an "outlier." The district court had rejected this argument, stating, "That others may have employed illegal trading strategies does not constitute a defense to a criminal indictment based on the employment of illegal trading strategies." The appeals court agreed and found from a review of the record that the case against Coscia was not built exclusively around the uniqueness of his trading strategy.

Assistance of counsel. Coscia’s effort to vacate his conviction on the basis of ineffective assistance of counsel fared no better than his motion for a new trial. He noted that Sullivan & Cromwell represented ICE in various transactions, including a $5.2 billion acquisition finalized on the first day of Coscia’s trial. Lead counsel had personally represented ICE in prior matters. According to Coscia, these undisclosed conflicts meant that the firm chose not to ascertain the accuracy of the government’s summary charts and failed to effectively cross-examine the representative of ICE who testified as a witness for the government.

An actual conflict under the Sixth Amendment means a conflict that adversely affects counsel’s performance, the appeals court explained. While lead counsel’s "prior direct involvement and his firm’s simultaneous involvement in the representation of ICE in other matters at the time of Mr. Coscia’s trial, and the failure to disclose such conflict, is cause for concern that loyalties may have been divided," Coscia failed to demonstrate a reasonable possibility that his representation was adversely affected. Significantly, Coscia’s defense strategy at trial was to argue that his trading activity, while unique, was above board. The evidence recovered post-trial had only mild relevance and probative value to this defense.

Coscia also argued that Sullivan & Cromwell represented two other entities whose representatives testified for the government, putting the firm in the position of having to cross-examine its former clients. But this did not establish that a conflict of interest existed at all in the absence of a showing that the representation of the former clients was related to the firm’s later representation of Coscia, or that the attorneys learned confidential information from the earlier representations that was relevant to Coscia’s case.

Finally, the court rejected Coscia’s other arguments of ineffective assistance of counsel. Here again, the defense strategy of acknowledging the unusual nature of the trades but maintaining their legality constituted a good-faith defense. Certain alleged failures to impeach or cross-examine witnesses did not overcome the strong presumption that counsel provided reasonable professional assistance. And even assuming that trial counsel’s performance was deficient, Coscia failed to demonstrate prejudice in light of the strong evidence of his intent.

The case is Nos. 19-2010 and 20-1032.