USDOJ Unravels Trading Scheme

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.

USDOJ Unravels Trading Scheme

November 8, 2019

A New York financial services firm agreed to pay tens of millions of dollars to settle a commodities futures scheme with USDOJ.

Tower Research Capital LLC (Tower), a New York, New York-based financial services firm, agreed to pay $67 million as part of a resolution with the US Department of Justice (USDOJ).

Here is part of a USDOJ press release.

“Tower entered into a deferred prosecution agreement (DPA) in connection with a criminal information filed yesterday in the Southern District of Texas charging the company with one count of commodities fraud. Under the terms of the DPA, Tower agreed to pay a combined $67.4 million in criminal monetary penalties, criminal disgorgement and victim compensation with the criminal monetary penalty credited for any payments made to the Commodity Futures Trading Commission (CFTC). Tower also agreed to, among other things, conduct appropriate reviews of its internal controls and policies and procedures, and to modify its compliance program, where necessary, to ensure it is designed to deter and detect violations of the Commodity Exchange Act and commodities fraud statute.”

CFTC

“Traders at Tower Research Capital LLC fraudulently placed thousands of bogus orders they never intended to execute—to deceive other market participants and move the market for their own benefit,” said Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division. “This agreement includes monetary penalties, the return of unjust profits, and compensation of victims to protect our nation’s commodities markets from manipulation.”

The USDOJ explained the scheme.

“From approximately March 2012 until December 2013, three traders who were members of a single trading team at Tower engaged in a scheme to defraud other participants in the markets for E-Mini S&P 500, E-Mini NASDAQ 100 and E-Mini Dow futures contracts (collectively, E‑Mini futures contracts). The S&P 500 and NASDAQ 100 future contracts were traded on the Chicago Mercantile Exchange, while the Dow futures contracts were traded on the Chicago Board of Trade. On thousands of occasions throughout this period, the traders fraudulently placed orders to buy and sell the E-Mini futures contracts with the intent to cancel those orders before execution, including in an attempt to profit by deceiving other market participants.

“By placing these orders, the traders intended to, and did, inject false and misleading information about the genuine supply and demand for E-Mini futures contracts into the markets, which deceived other market participants into believing something untrue, namely that the visible order book accurately reflected market-based forces of supply and demand. This false and misleading information was intended to, and at times did, trick other market participants into reacting to the apparent change and imbalance in supply and demand by buying and selling E-Mini futures contracts at quantities, prices and times they otherwise likely would not have traded. The Department and Tower have filed a joint motion, which is subject to approval by the Court, to defer for the term of the DPA any prosecution and trial of the criminal information filed against Tower.”

The Commodities Futures Trading Commission filed a parallel action on the same day.

This is part of an ongoing action.

Two traders have already pled guilty.

In November 2018, Kamaldeep Gandhi, 37, pled guilty to charges of two counts of conspiracy to engage in wire fraud, commodities fraud and spoofing. His sentencing is scheduled for Feb. 7, 2020.

On Nov. 6, 2018, Krishna Mohan pleaded guilty to one count of conspiracy to engage in wire fraud, commodities fraud and spoofing, and his sentencing is scheduled for Feb. 13, 2020, before U.S. District Judge Gray H. Miller of the Southern District of New York.

The third trader Yuchun (Bruce) Mao, 40, is a citizen of China and he has charges pending, also in the Southern District of New York.

The Southern District of New York includes Wall Street, and is where much of the financial center of the US is located.

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