CHICAGO— A New Jersey man who engaged in “spoofing” or high-frequency trading to illegally manipulate commodities futures prices with false signals to make $1.6 million in profits has been indicted, officials announced Thursday.
Michael Coscia, 52, of Rumson, N.J., a registered commodities trader since 1988, was charged with six counts of commodities fraud and six counts of “spoofing” in a 12-count indictment returned Wednesday by a federal grand jury
Coscia, was the manager and sole owner of the former Panther Energy Trading LLC, of Red Bank, N.J., which he formed in 2007.
He illegally made nearly $1.6 million as a result of trading orders he placed through CME Group and European futures markets in 2011.
This case is the first-of-its-kind prosecution under the anti-spoofing provision that was added to the Commodity Exchange Act by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.
Federal officials stated in the indictment that spoofing is high-frequency trading is a form of automated trading that uses computer algorithms for decision-making and placing a high volume of trading orders, quotes, or cancelation of orders in milliseconds.
Also the indictment alleges that Coscia designed two computer programs he allegedly used in 17 different CME Group markets and three different markets on the London-based ICE Futures Europe exchange, including gold, soybean meal, soybean oil, high-grade copper, Euro FX and Pounds FX currency futures, to implement his fraudulent strategy.
It was illegal for traders to place orders in the form of “bids” to buy or “offers” to sell a futures contract with the intent to cancel the bid or offer before execution.
“Traders and investors deserve a level playing field, and when the field is tilted by market manipulators, regardless of their speed or sophistication, we will prosecute criminal violations to help ensure fairness and restore market integrity,” U.S. Attorney Zachary Fardon said.
Adding, “This case reflects the reasons why, earlier this year, we established a Securities and Commodities Fraud Section, which is dedicated to protecting markets and preserving investors’ confidence.”
The Indictment Details How Coscia Allegedly Defrauded Market Participants
- Between August and October 2011, Coscia allegedly defrauded participants in the CME Group and ICE Futures Europe markets.
- In August 2011, Coscia began a high-frequency trading strategy in which he entered large-volume orders that he intended to immediately cancel before they could filled by other traders.
- Coscia devised this strategy to create a false impression regarding the number of contracts available in the market, and to fraudulently induce other market participants to react to the deceptive market information he created.
- His strategy moved the markets in a direction favorable to him, enabling him to purchase contracts at prices lower than, or sell contracts at prices higher than, the prices available in the market before he entered and canceled his large-volume orders.
- Coscia then allegedly repeated this strategy in the opposite direction to immediately obtain a profit by buying futures contracts at a lower price than he paid for them, or by selling contracts at a higher price than he paid for them.
- Each such trade allegedly occurred in a matter of milliseconds.
As a result of the aggregate of those fraudulent high-frequency trades, Coscia illegally profited approximately $1,592,867 over approximately three months, the indictment alleges.
The indictment details an example through trades that Coscia placed milliseconds apart in the Euro FX market during the early morning on Sept. 1, 2011.
By entering large orders that he intended to cancel at the time he placed them, and caused to be canceled before other traders could fill them, Coscia made a profit by buying 14 contracts at 14288 ticks and selling them at 14289 ticks less than one second later.
Each count of commodities fraud carries a maximum sentence of 25 years in prison and a $250,000 fine, and each count of spoofing carries a maximum penalty of 10 years in prison and a $1 million fine.
Coscia is innocent until proven guilty.