High-frequency trader convicted in first US spoofing case

Unwitting commodities traders were "caught in a bait-and-switch scheme" masterminded by Michael Coscia as he sought to manipulate markets via "spoofing", USA prosecutors said at the end of the first trial over the banned tactic. The trial was widely followed by lawyers and trading firms for clarity in similar cases amid stepped-up investigations into spoofing. Spoofing involves placing bids to buy or offers to sell a futures contract, rapidly canceling it, and then waiting to see how the market reacts to make a real bid or offer.

Karen Seymour, a lawyer for Coscia, declined to comment after the verdict.

In less than three months in 2011, Coscia illegally profited almost $1.4 million, prosecutors said.

He was convicted on six counts of spoofing and six counts of commodities fraud.

Coscia, who used to trade on the floor of the New York Mercantile Exchange, testified he in his own defense that he meant to trade on every order he placed. Each count of spoofing carries a maximum sentence of 10 years in prison and a $1 million fine. If convicted, Coscia faces as long as 25 years in prison on the most serious counts.

"Investors are better off when spoofers who prey on high-frequency traders are brought to justice", said Bill Harts, chief of the Modern Markets Initiative, a group representing high-frequency and algorithmic traders.

The criminal case was a test of authorities' attempts to stamp out computer-driven misleading trading on the a few of the world's most active markets.

CME and ICE declined to comment on the verdict. Prosecutors allege he never meant to trade the large orders, a violation of the 2010 Dodd-Frank Act.

US regulators had recently leveled charges of manipulating futures markets against Chicago trader Igor Oystacher and his firm 3Red Trading LLC. According to reports, Sarao has denied the allegations.

Coscia's case is USA v. Coscia, 14-cr-00551, U.S. District Court, Northern District of Illinois.