On April 25, 2018, a jury in the United States District Court in Connecticut acquitted former UBS AG (“UBS”) trader Andre Flotron of conspiring to manipulate the precious metals futures market through “spoofing.”  The verdict, the first acquittal in a criminal spoofing-related case since the practice was outlawed by the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) in 2010, reflects the difficulties the government faces in cracking down on the practice.

Spoofing Generally

Spoofing is a trading scheme whereby a trader places and quickly cancels orders that he or she never intended to execute.  Such “spoofed” orders can alter the market price of futures contracts by altering the appearance of supply and demand, allowing the trader to fill “genuine” orders at favorable prices.  For example, a trader engaging in spoofing might place a “genuine” sell order on the opposite side of the market from a larger, “spoofed” buy order.  The large buy order creates the impression of increased market demand, driving the price up.  The trader can then execute the “genuine” sell order at a higher price and quickly cancel the large, “spoofed” buy order.

As part of Dodd-Frank’s amendments to the Commodity Exchange Act (“CEA”), Congress enacted a civil prohibition against spoofing, which is defined as “bidding or offering with the intent to cancel the bid or offer before execution,” that is enforceable by the Commodity Futures Trading Commission (“CFTC”).[1]  The CEA also makes it a criminal violation to “knowingly” violate the prohibition against spoofing.[2]  The Department of Justice (“DOJ”) may bring criminal charges relating to spoofing under this statute, or alternatively, under the mail, wire and commodities fraud statutes.[3]

U.S. v. Flotron – Procedural History and Trial

Flotron, a Swiss national, worked as a senior trader on the precious metals trading desk at UBS in Stamford, Connecticut and later transferred to UBS in Zurich, Switzerland.[4]  He was arrested in September 2017 while back in the U.S. to visit his girlfriend.[5]  A federal grand jury in Connecticut returned a one-count indictment charging Flotron with conspiracy to commit wire fraud, commodities fraud and spoofing in violation of 18 U.S.C. § 371 from July 2008 through November 2013.[6]  Months later, in a superseding indictment returned on January 30, 2018, Flotron was charged with conspiracy to commit commodities fraud in violation of 18 U.S.C. § 1349, as well as six substantive counts:  three each of spoofing in violation of the CEA[7] and commodities fraud[8] relating to three sets of transactions on three specific dates.[9]  The District Court dismissed all six substantive counts pretrial on venue grounds (finding that the trades had no connection to Connecticut),[10] but subsequently denied Flotron’s motion to dismiss the conspiracy count on the merits.[11]

As a result, the case proceeded to trial in Connecticut on the sole conspiracy count.  During a six-day trial, prosecutors presented voluminous trading data, identifying several hundred sets of transactions that they alleged represented spoofing, as well as chats between Flotron and his former UBS colleagues that the government claimed demonstrated Flotron’s intent to manipulate the market.[12]  In addition, two former UBS traders, who cooperated with the government in exchange for non-prosecution agreements, testified that spoofing was commonplace in the precious metals business.[13]  One of the traders testified that he learned to spoof by observing the trading practices of Flotron, his mentor.[14]

Among other things, Flotron’s attorneys capitalized on the difficulty in showing intent in a spoofing case, as well as the challenge presented by the fact that the government’s sole remaining charge was a conspiracy count (which required proof of an agreement to violate the law by at least two people).  They argued that the government’s trading data analysis was merely “prosecution by statistics,” and that the data, by itself, was not enough to demonstrate intent since there was no context for why the trades may have been inappropriate, particularly since traders regularly cancel trades.[15]  The defense also pointed out that none of the government’s evidence, including Flotron’s chats and emails, showed that Flotron agreed to take part in a conspiracy.[16]

After just a few hours of deliberation, the jury returned a verdict of not guilty.[17]


Flotron’s acquittal was undoubtedly a setback for the DOJ’s anti-spoofing efforts, and indirectly a setback for the CFTC, given the publicity around this case and numerous other recent criminal and civil spoofing cases as part of newly-announced, aggressive anti-spoofing initiatives.  As we discussed in a blog post last month,[18] in January 2018, the CFTC announced the creation of a new Spoofing Task Force, which James McDonald, the Director of the CFTC’s Enforcement Division, explained would be “a coordinated effort across the Division . . . to root out spoofing from our markets.”[19]  On the same day, the DOJ announced a “Futures Markets Spoofing Takedown,” described as the “largest futures market criminal enforcement action in Department History,” which including six criminal spoofing cases, including the superseding indictment against Flotron.[20]

These announcements came after the U.S. Court of Appeals for the Seventh Circuit rejected constitutional challenges to the CEA’s anti-spoofing provision and upheld the first-ever federal spoofing conviction.[21]  As Flotron’s acquittal demonstrates, however, spoofing cases still carry significant risks for prosecutors.  Since traders will often cancel orders prior to execution for legitimate purposes, the government in spoofing cases needs to prove that a trader had the purpose or conscious desire, at the time he or she placed orders, to cancel those orders prior to execution.[22]  Moreover, in a criminal spoofing case, the prosecutor has the additional burden of proving that the trader “knowingly” engaged in spoofing.[23]  While in some spoofing cases the government may have witness testimony or contemporaneous communications to help prove intent, its central evidence will typically be patterns extracted from trade and market data.[24]  That evidence can be difficult for juries to decipher, and the focus on data analysis exposes prosecutors to the criticisms of cherry-picking evidence and “prosecution by statistics” raised by Flotron.

With additional spoofing cases pending, it bears watching how the government reacts to this verdict, and whether it leads prosecutors on those cases to adjust their strategy (to the extent supported by the evidence) when those cases proceed to trial.

[1] CEA § 4c(a)(5), 7 U.S.C. § 6c(a)(5)(C).

[2] CEA § 9(a)(2), 7 U.S.C. § 13(a)(2).

[3] 18 U.S.C. §§ 1341, 1343, 1348.

[4] See Complaint, United States v. Flotron, No. 17-cr-220 (D. Conn. Sept. 12, 2017), ECF No. 1.

[5] Jonathan Stempel, U.S. Accuses Ex-UBS Metals Trader of Rigging Metals Prices, Reuters (Sept. 20, 2017), https://www.reuters.com/article/legal-us-ubs-trader/u-s-accuses-ex-ubs-metals-trader-of-rigging-metals-prices-idUSKCN1BP2LZ.

[6] See Indictment, United States v. Flotron, No. 17-cr-220 (D. Conn. Sept. 26, 2017), ECF No. 14.

[7] 7 U.S.C. § 6c(a)(5)(C) and § 13(a)(2).

[8] 18 U.S.C. § 1348.

[9] See Superseding Indictment, United States v. Flotron, No. 17-cr-220 (D. Conn. Jan. 30, 2018), ECF No. 58.

[10] See Order, United States v. Flotron, No. 17-cr-220 (D. Conn. Feb. 19, 2018), ECF No. 81.

[11] See Order, United States v. Flotron, No. 17-cr-220 (D. Conn. Mar. 20, 2018), ECF No. 142. The conspiracy was allegedly formed in Connecticut, so that count could not be challenged for lack of venue.

[12] See, e.g., Christine Smythe, Ex-UBS Metals Trader Beats Spoofing Conspiracy Charge, Bloomberg Markets (April 25, 2018), https://www.bloomberg.com/news/articles/2018-04-25/ex-ubs-metals-trader-flotron-beats-spoofing-conspiracy-charge.

[13] Id.

[14] See, e.g., Christine Smythe, Ex-UBS Trader was Spoofing ‘Mentor’ on Precious Metals Desk, Bloomberg Markets (April 18, 2018), https://www.bloomberg.com/news/articles/2018-04-18/ex-ubs-trader-was-spoofing-mentor-on-precious-metals-desk.

[15] See, e.g., Jon Hill, Ex-UBS Trader Acquitted of Spoofing Scheme, Law360 (Apr. 25, 2018), https://www.law360.com/articles/1037130/ex-ubs-trader-acquitted-of-spoofing-scheme.

[16] Id.

[17] See, e.g., Emily Flitter, Former UBS Trader Is Cleared in ‘Spoofing’ Case, The New York Times (April 25, 2018), https://www.nytimes.com/2018/04/25/business/ubs-trader-spoofing-flotron.html.

[18] Please see our prior post: https://www.clearyenforcementwatch.com/2018/03/recent-cftc-enforcement-actions-spoofing-virtual-currency-task-forces/.

[19] Statement of CFTC Director of Enforcement James McDonald (Jan. 29, 2018), http://www.cftc.gov/PressRoom/SpeechesTestimony/mcdonaldstatement012918.

[20] U.S. Dep’t of Justice, Acting Assistant Attorney General John P. Cronan Announces Futures Markets Spoofing Takedown (Jan. 29, 2018), https://www.justice.gov/opa/speech/acting-assistant-attorney-general-john-p-cronan-announces-futures-markets-spoofing.  

[21] Please see our prior post for more detail on United States v. Coscia, No. 16-3017 (KFR), 2017 WL33813433 (7th Cir. Aug. 7, 2017):  https://client.clearygottlieb.com/51/405/uploads/2017-08-10-seventh-circuit-upholds-first-ever-federal-spoofing-conviction.pdf. Coscia has since filed a petition for certiorari in the Supreme Court.  Coscia v. U.S., No. 17-1099, Petition for Writ of Certiorari (Feb. 2, 2018).

[22] See, e.g., Robert J. Anello & Richard F. Albert, ‘Spoofing’—The New Frontier for Criminal Prosecution?, The New York Law Journal (Dec. 1, 2015), https://www.maglaw.com/publications/articles/2015-12-02-spoofing-the-new-frontier-for-criminal-prosecution/_res/id=Attachments/index=/Anello%20Albert%2012.1.pdf; Jessica Corso, 7th Circ. Weighs Future of Spoofing Prosecutions, Law360 (Nov. 10, 2016), https://www.law360.com/articles/861677/7th-circ-weighs-future-of-spoofing-prosecutions.

[23] See CEA § 9(a)(2), 7 U.S.C. § 13(a)(2).

[24] See, e.g., Richard Satran, Spoofing or Just Fast Trading? Chicago Case Helps Unwrap Mystery, Reuters Financial Regulatory Forum (Nov. 19, 2015), http://blogs.reuters.com/financial-regulatory-forum/2015/11/19/spoofing-or-just-fast-trading-chicago-case-helps-unwrap-mystery/.