An Australian Trader Pled Guilty to Spoofing

Michael Volpe

After spending a decade in finance, Michael Volpe has been a freelance investigative journalist since 2009. His work has been published locally in the Chicago Reader, Chicago Crusader, Chicago Heights Patch, and New City. Nationally, Volpe's work has appeared in a wide variety of publications including the Washington Examiner, the Daily Caller, Crime Magazine, the Southern Christian Leadership Conference Newsletter, and Counter Punch. Volpe has been recognized by whistleblowers as leading the charge in getting their stories out. His first book Prosecutors Gone Wild was published in October 2012, his second book The Definitive Dossier of PTSD in Whistleblowers was published in February 2013 and his third book Bullied to Death was published in August 2015.

An Australian Trader Pled Guilty to Spoofing

February 1, 2019

guilty spoofingAn Australian trader pled guilty to spoofing, the US Department of Justice (USDOJ) announced.

The USDOJ made the announcement against Jiongsheng (“Jim”) Zhao, 31, of Sydney, Australia.

Jiongsheng (‘Jim’) Zhao, 31, of Sydney, Australia, pleaded guilty before U.S. District Judge John J. Tharp Jr. of the Northern District of Illinois to one count of spoofing.  Zhao was extradited to the United States on Nov. 16 and made his first court appearance on Nov. 19.  Sentencing is scheduled for July 19, 2019, before Judge Tharp.” The USDOJ said in a press release.

“For almost four years, Jim Zhao placed thousands of phony orders for E-mini S&P 500 futures contracts that he never intended to execute—all in an effort to fraudulently move the market to his own advantage,” said Assistant Attorney General Benczkowski.  “The Department and our law enforcement partners will use every tool at our disposal to identify and prosecute those who engage in manipulative trading activity on U.S. markets.”

The press release described a scheme which lasted approximately four years.

As part of his plea, Zhao admitted that from approximately July 2012 through March 2016, he placed thousands of orders for E-mini S&P 500 futures contracts on the CME, a commodities exchange operated by CME Group Inc., that, at the time Zhao placed the orders, he intended to cancel before execution (the Spoof Orders).  Zhao admitted that typically he engaged in this trading strategy when he already had an order for E-mini S&P 500 futures contracts pending in the market that he did want to execute, but that was not being filled (the Primary Order).  Zhao admitted that he would place the Spoof Orders on the opposite side of the market from the Primary Order with the goal to induce other market participants to trade against his Primary Order. 

This trading strategy, Zhao admitted, was intended to inject materially false and misleading liquidity and price information into the E-mini S&P 500 futures contracts market by placing the Spoof Orders in order to deceive other market participants about the existence of supply and demand.  The Spoof Orders were designed to artificially move the price of E-mini S&P 500 futures contracts in a direction that was favorable to Zhao, and to the detriment of other market participants.  In pleading guilty, Zhao admitted that he placed the Spoof Orders in order to generate profits (or mitigate losses) for himself and Trading Firm A, and that Trading Firm A kept a percentage of Zhao’s trading profits, ranging at various times from 20 percent to 50 percent.

According to admissions in the plea agreement, in approximately March 2016, the CME began an investigation into Zhao’s trading activity in connection with the E-mini S&P 500 futures contracts. As part of that investigation, Zhao submitted to a CME interview and provided the CME with written responses to explain his trading activity, including three specific examples of Zhao’s trading activity.  In a written response submitted to the CME, Zhao stated that all of the orders identified in the three examples were part of either a ‘scalping’ or spread trading strategy and were placed with the intention to execute. 

In truth and in fact, however, Zhao admitted as part of his plea that when providing this response to the CME, he knew that he had placed certain large orders identified in each example with the intent, at the time they were placed, to cancel them before execution (i.e., the large orders were Spoof Orders). Zhao admitted that his statement to the CME that he placed these large orders with the intention that they’d be fulfilled was false and misleading, and that he made this false statement in order to falsify, conceal and cover up his spoofing conduct.”

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