SPOOFING This strategic decision by the government prosecutors is an important point because, as noted above, the CFTC and exchanges struggled publicly to provide guidance on this subject. The CFTC did not publish its final interpretive guidance regarding spoofing until May 28, 2013, and then only after an aborted attempt to draft rules on the subject that featured CFTC Commissioners commenting publicly about the vagueness of the operative language.26 The CME published its disruptive practices rules even later on August 29, 2014.27 The CFTC and CME guidance was, therefore, controversial and late, arriving well after the effective date of the antispoofing provision and the conduct at issue in this case. By focusing instead on actual spoofing and the core definition provided in the statute, the DOJ eliminated from the trial a sideshow of distracting legal issues that could have undermined the simplicity and success of its argument. Footnotes: 1. Spoof, Oxford Dictionaries, www.oxforddictionaries.com/us/definition/american_english/ spoof (last visited Nov. 16, 2015). 2. This is the author’s definition of ‘spoofing’ For the reasons described in this article, we think . that this definition is now the most important one for this little-understood term. 3. Spoof (game), WIKIPEDIA, https://en.wikipedia.org/wiki/Spoof_(game) (last visited Nov.

16, 2015). 4. CEA section 4c(a)(5)(C). 5. CFTC, Staff Roundtable on Disruptive Trading Practices (Dec. 2, 2010), www.cftc.gov/idc/ groups/public/@swaps/documents/dfsubmission/dfsubmission24_120210-transcri.pdf. 6. CFTC, Q&A – Interpretive Guidance and Policy Statement on Disruptive Practices, www. cftc.gov/idc/groups/public/@newsroom/documents/file/dtpinterpretiveorder_qa.pdf; CME, CBOT, NYMEX & COMEX, CME Group RA1405-5 (Aug. 29, 2014), www.cmegroup.com/ tools-information/lookups/advisories/market-regulation/files/RA1405-5.pdf. 7. In 2013, Coscia also settled related charges brought by the U.K.

Financial Conduct Authority for approximately $900,000. 8. Indictment, United States v. Sarao, No. 15 CR 75 (Sept.

2, 2015). 9. Id. 10. Id.; In re Panther Energy Trading LLC, CFTC Docket No. 13-26, at 3 (July 22, 2013), available at www.cftc.gov/idc/groups/public/@lrenforcementactions/documents/ legalpleading/enfpantherorder072213.pdf; Brian Louis, Janan Hanna, Spoofing Defendant Coscia Says He Intended to Trade Orders, BLOOMBERGBUSINESS (Oct. 29, 2015 7:18 PM EDT), www.bloomberg.com/news/articles/2015-10-29/ spoofing-defendant-coscia-takes-stand-as-prosecution-rests-igcm9s0g. 11. Id. 12. Brian Louis, Janan Hanna, Swift Guilty Verdict in Spoofing Trial May Fuel New Prosecution in U.S., BLOOMBERGBUSINESS (Nov.

3, 2015 10:27 PM EST), www.bloomberg.com/news/ articles/2015-11-03/commodities-trader-coscia-found-guilty-in-first-spoofing-trial. 13. Brian Louis, Janan Hanna, Spoofing Defendant Coscia Says He Intended to Trade Orders, BLOOMBERGBUSINESS (Oct. 29, 2015 7:18 PM EDT), www.bloomberg.com/news/ articles/2015-10-29/spoofing-defendant-coscia-takes-stand-as-prosecution-rests-igcm9s0g. 14. Mark Melin, Coscia Guilty in Spoofing Trial As Prosecutors Look to Sarao, ValueWalk (Nov. 4, 2015 1:18 PM), www.valuewalk.com/2015/11/spoofing-coscia/. 15. Kim Janssen, Spoofing Trial Gets Testy: ‘I’m not dealing hot dogs, I’m dealing futures!’, CHICAGO TRIBUNE, Oct. 30, 2015, www.chicagotribune.com/business/ct-spoofing-trial1031-biz-20151030-story.html. 16. Alleged CME ‘Spoofer’ Testifies: ‘I didn’t move any market’ CHICAGO TRIBUNE, Oct.

29, , 2015, www.chicagotribune.com/business/ct-spoofing-trial-1030-biz-20151029-story.html 17. Tom Polansek, ‘Spoofing’ defendant was biggest trader in markets, U.S. jury hears, REUTERS (Oct. 30, 2015 3:02 PM EDT), www.reuters.com/article/2015/10/30/ us-court-spoofing-trader-idUSKCN0SO2K520151030#FgBJhGpZ6s9Qs5Tv.97 18. Kim Janssen, Spoofing Trial Gets Testy: ‘I’m not dealing hot dogs, I’m dealing futures!’, CHICAGO TRIBUNE, Oct.

30, 2015, www.chicagotribune.com/business/ct-spoofing-trial1031-biz-20151030-story.html. 19. Jon Seidel, Brooklyn Native Found Guilty in ‘Spoofing’ Case in Chicago, CHICAGO SUNT-TIMES, Nov. 3, 2015, http://chicago.suntimes.com/business/7/71/1070101/ brooklyn-native-found-guilty-spoofing-case-chicago 20. Brian Louis, Janan Hanna, Swift Guilty Verdict in Spoofing Trial May Fuel New Prosecution in U.S., BLOOMBERGBUSINESS (Nov. 3, 2015 10:27 PM EST), www.bloomberg.com/news/ articles/2015-11-03/commodities-trader-coscia-found-guilty-in-first-spoofing-trial. 21.

Philip Stafford, Lindsay Whipp, Gregory Meyer, US Trader Found Guilty in Landmark ‘Spoofing’ Case, CNBC (Nov. 4, 2015), www.cnbc.com/2015/11/04/. 22. See generally, Motion to Dismiss, U.S. v.

Coscia, No. 14 CR 551 (Dec. 15, 2014). 23. See generally, Memorandum Opinion and Order, U.S.

v. Coscia, No. 14 CR 551, (Apr.

16, 2015). 24. Government’s Consolidated Motions in Limine, U.S. v. Coscia, No.

14 CR 551 (Oct. 5, 2015); CEA section 4c(a)(5). 25 The exception was that the court allowed Coscia to use other rules and regulations in the industry as evidence that his conduct was permissible; Memorandum Opinion and Order at 2-3, U.S. v.

Coscia, No. 14 CR 551 (Oct. 19, 2015), however, Coscia’s defense did not appear to rely heavily on such material. 26.

Antidisruptive Practices Authority, 78 Fed. Reg. 31890 (May 28, 2013). 27.

CME, CBOT, NYMEX & COMEX, CME Group RA1405-5 (August 29, 2014), www.cmegroup. com/tools-information/lookups/advisories/market-regulation/files/RA1405-5.pdf. 28. Id. 29. 18 U.S.C. § 1348. 30. CEA section 9(a)(2). D. What is Next? Coscia’s sentencing hearing is scheduled for March 17, 2016.28 Each of the six counts of commodities fraud carries a maximum sentence of 25 years in prison, plus a $250,000 fine.29 The spoofing counts each carry a maximum sentence of 10 years in prison, plus a $1 million fine.30 The Coscia verdict is a cause of concern for all commodities and derivatives market participants. Spoofing creates a new source of trading risk.

Given the continued spotlight on alleged misconduct involving the financial markets (and new focus on individual accountability), commodities and derivatives traders and their firms need to take this risk seriously − even The Coscia verdict is a cause of concern for all commodities and derivatives market participants though the activity may appear to be inconsequential or something that only pertains to niche algorithmic traders. The reality is that every trader is potentially vulnerable to a postfacto allegation that he or she intended to cancel his or her bids or offers before they were executed. This reality should continue to make corporations, algorithmic trading firms, and traders anxious over the next few years. • Gregory Mocek is a partner in the Energy & Commodities Group and White Collar Group at Cadwalader, Wickersham & Taft LLP in Washington, DC. He is the former Director of Enforcement at the CFTC during the Bush administration. Jonathan Flynn is an Associate in the Energy & Commodities Group at Cadwalader and was formerly a staff attorney at the SEC. E: gregory.mocek@cwt.com www.cadwalader.com February 2016 63 .