With Gary Gensler, the former Commodity Futures Trading Commission chairman who oversaw the first wave of spoofing investigations, tapped to lead the SEC, Kobre & Kim LLP attorneys say they expect the DOJ to work closely with the SEC using criminal wire fraud charges in the securities and cryptocurrency markets. They offer suggestions on how to prepare.
Armed with a new tactic for targeting spoofing—placing orders with intent to cancel before execution—the Department of Justice received preliminary judicial endorsement of its new theory that spoofing constitutes wire fraud by obtaining convictions in United States v. Vorley.
Those convictions, coupled with a string of resolutions with trading firms over similar allegations—including a recent resolution in which JPMorgan Chase & Co. agreed to pay $920 million—have wary industry players asking: (1) Which markets will the DOJ focus on in 2021? (2) What time periods do I need to be concerned about? (3) Which traders are most at risk? and (4) How do I respond if the DOJ (or another regulator) shows up?
Securities Market in the Crosshairs
The DOJ has focused its spoofing enforcement efforts on futures trading, often in close collaboration with the Commodity Futures Trading Commission. And while much of the commentary surrounding the JPMorgan resolution focused on futures, careful observers may have noticed that the deal also addressed the cash securities market. This little discussed facet of the case deserves more attention.
Even before the election, the DOJ had taken steps to bolster its anti-spoofing initiative with an eye toward deploying its new wire fraud theory to securities. And now that Gary Gensler, the former CFTC Chairman that oversaw the first wave of spoofing investigations, has been tapped to lead the SEC, we expect to DOJ to follow the same collaborative model it deployed with the CFTC to work closely with the SEC in tackling the securities market.
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