Washington, DC – The Commodity Futures Trading Commission (CFTC) today issued an Order filing and simultaneously settling charges against Merrill Lynch Commodities, Inc. (MLCI), a provisionally registered swap dealer, for spoofing, manipulation, and attempted manipulation over a six-year period with respect to certain precious metals futures contracts traded on the Commodity Exchange, Inc. (COMEX).
The CFTC Order imposes monetary sanctions totaling approximately $25 million, which includes a civil monetary penalty of $11.5 million dollars, over $2.3 million in restitution, and disgorgement of $11.1 million. The Order also requires MLCI to cooperate with the CFTC in matters related to this action and the underlying conduct, and to comply with certain obligations in connection with its corporate compliance program and reporting requirements.
CFTC’s Director of Enforcement Comments
James McDonald, CFTC Director of Enforcement, stated: “Today’s enforcement action shows that the Commission continues to aggressively pursue those who manipulate and spoof in our markets. If left unchecked, this sort of misconduct can undermine the integrity of the price discovery process, harm law-abiding market participants, and diminish confidence in our markets more generally. That’s why we will continue to keep our markets free from spoofing and manipulation.”
The Order specifically finds that during the period from at least 2008 through 2014 certain traders at MLCI (Traders) placed orders to buy and sell precious metals futures contracts with the intent to cancel the orders before execution. According to the Order, the Traders’ spoofing strategy frequently involved placing a relatively small bid or offer with the intent to execute that order (the Genuine Order) and, prior to the execution of the Genuine Order, placing a larger order (or multiple orders) on the opposite side of the same market with the intent to cancel the order or orders before execution (the Spoof Order). Generally, the Traders would receive a partial or complete fill of the Genuine Order and cancel the Spoof Order before it was filled. The Order further finds that the Traders engaged in this conduct with the intent to manipulate market prices and ultimately did cause artificial prices. Moreover, as the Order finds, on occasion, certain Traders acknowledged spoofing to affect prices. For example, in a November 16, 2010 electronic chat, a Trader stated:
“guys the algos are really geared up in here. [I]f you spoof this it really moves . . . .”
The Order recognizes that MLCI provided substantial cooperation to CFTC’s Division of Enforcement which resulted in a substantially reduced civil monetary penalty.
Today, the US Department of Justice also announced that the Fraud Section of the Criminal Division has entered into a Non-Prosecution Agreement with MLCI in a parallel matter. Under the terms of the agreement, MLCI has agreed, among other things, to pay $25 million, which represents the combined appropriate criminal fine, forfeiture, and restitution amounts in that matter, to cooperate fully with the Fraud Section in any and all matters relating to the underlying conduct, and to comply with certain obligations in connection with its corporate compliance program and reporting requirements.
The CFTC thanks and acknowledges the assistance of the U.S. Department of Justice and the Federal Bureau of Investigation.
This case is brought in connection with the CFTC Division of Enforcement’s Spoofing Task Force, and the staff members responsible for this matter are Brandon Wozniak, Lara Turcik, Candice Aloisi, Lenel Hickson, Jr., and Manal M. Sultan.