“Spoofing” as Fraud: A Novel and Untested Theory of Prosecution

April 2, 2019  |  Business Crimes Bulletin

In the past few years, the government has brought several prosecutions targeting “spoofing” activity in the commodity futures markets, with mixed results at trial. In this article, we survey recent prosecutions in which the government has attempted to prosecute spoofing activity under traditional fraud statutes, including commodities fraud and wire fraud, which requires the government to prove that a defendant made a false statement or a material misrepresentation. To make that showing, the government has argued that spoofing—bidding or offering with the intent to cancel the bid or offer before execution—involves an implied misstatement to the market regarding supply and demand and a defendant’s willingness to trade. In response, defendants (joined by financial industry associations) have forcefully criticized the government’s novel theory as an overly expansive application of the wire-fraud statute. How the federal courts address the applicability of traditional fraud statutes to spoofing-related activity will have significant implications for market participants.

“Spoofing” as Fraud: A Novel and Untested Theory of Prosecution (pdf | 359.00 KB)