A former futures trader recently agreed to a settlement order from the U.S. Commodity Futures Trading Commission (“CFTC”) imposing a permanent trading ban for spoofing and manipulation, and pled guilty to criminal charges of manipulation and wire fraud, for trading done in the precious metals market.
David Liew was a trader on a major financial institution’s precious metals desk from December 2009 to February 2012 and, according to certain news reports, was based in Singapore. According to the CFTC and U.S. Department of Justice (“DOJ”), Mr. Liew entered hundreds of orders for futures contracts without the intent to executed them during that time.
Mr. Liew resigned from his trading position in 2012, and wrote a blog entry at that time titled “Why I Quit my Investment Banking Job to Start a Tech Company,” where he explained that he “was uncomfortable with some of the things I witnessed/experienced.” According to the CFTC and DOJ, however, Mr. Liew personally spoofed the market, and also did so in coordination with at least one trader from another financial institution.
The complaint alleges Mr. Liew would spoof on his own by placing orders in gold and silver futures contracts listed on COMEX with the intent to induce other market participants to fill his resting order(s) on the opposite side of the market. When coordinating with another trader, Mr. Liew or his co-conspirator would place a resting order on one side of the market, at which point the other person would enter a large order on the opposite side of the market to induce the execution of the original resting order.
The civil and criminal actions also allege that Mr. Liew and his co-conspirators engaged in “stop-loss manipulation.” This involved executing trades with the intent of driving the market price either up or down in order to trigger a customer’s stop-loss order (i.e., an order to buy or sell when a particular price level is reached) so that the traders could benefit from the anticipated movement in price that would result from the execution of the customer’s trade.
As is often the case, the CFTC and DOJ built their cases around incriminating communications (in this case, instant messages (“IM”)) between Liew, his colleagues and co-conspirators. For example, the CFTC settlement order quotes Mr. Liew explaining his spoofing strategy to a co-conspirator, saying: “basically i sold out … by just having fake bids …[in] the futures … i just spam bids below … to clear my offer.” In connection with the stop-loss manipulation scheme, Mr. Liew agreed to an IM request where another trader asked “can u help me push silver down?” And in another exchange about gold futures, a trader asked Liew to “push it up” because the trader “need[ed] a print.”
The CFTC did not impose a civil penalty on Mr. Liew due to “his cooperation in a Commission investigation and related proceedings,” and the DOJ agreed to postpone sentencing until “after the conclusion of his cooperation.”