High-Frequency Trader Sentenced to Three Years in Prison for Disrupting Futures Market in First Federal Prosecution of "Spoofing"
Wednesday, July 13, 2016
CHICAGO — In the first federal prosecution of its kind, a high-frequency trader was sentenced today to three years in prison for disrupting commodity futures prices in a $1.4 million fraud scheme.
MICHAEL COSCIA, 54, used an automated trading technique known as “spoofing” to earn illegal profits from orders he placed through Chicago-based CME Group and London-based ICE Futures Europe. Coscia commissioned the design of computer programs, known as algorithms, to implement the fraudulent strategy at his New Jersey trading firm.
A federal jury in Chicago last year convicted Coscia, of Rumson, N.J., on six counts of commodities fraud and six counts of spoofing. U.S. District Judge Harry D. Leinenweber imposed the 36-month sentence in federal court in Chicago.
“Traders contemplating sophisticated scams will think twice if they know that there are more significant consequences than a civil lawsuit or a regulatory action,” Assistant U.S. Attorney Sunil Harjani argued in recommending a term of imprisonment in the government’s sentencing memorandum. “Hedge funds and proprietary trading firms will closely review their trades, and strike down get-rich-quick manipulation trading schemes because the cost is not worth the benefit.”
The indictment against Coscia marked the first federal prosecution under the anti-spoofing provision enacted in the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. The case was prosecuted by the Securities and Commodities Fraud Section of the U.S. Attorney’s Office in Chicago. The section, which was created in 2014 by United States Attorney Zachary T. Fardon, is dedicated to protecting markets and preserving investors’ confidence.
Mr. Fardon announced the sentence along with Michael J. Anderson, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation.
High-frequency trading is a form of automated trading that uses algorithms for placing a high volume of orders in milliseconds. It is illegal for traders to engage in spoofing, which involves placing “bids” to buy or “offers” to sell a futures contract with the intent to cancel the bid or the offer before execution.
Evidence at Coscia’s seven-day trial in November 2015 showed that he engaged in spoofing in the markets of various commodities, including gold, soybean meal, soybean oil, high-grade copper, Euro FX and Pounds FX currency futures. In less than three months in 2011, Coscia illegally profited nearly $1.4 million.