CFTC Charges Moncada, BES Capital LLC and Serdika LLC for Attempted Manipulation (with Mocek Comment)

The CFTC filed a complaint in the U.S. District Court for the Southern District of New York charging a number of firms and individuals with attempted manipulation of prices of the December 2009 #2 Soft Red Winter Wheat futures contract traded on the CBOT. David Meister, Director of the CFTC’s Division of Enforcement, stated: "The illegal scheme alleged in the complaint, entering and quickly cancelling large-lot futures orders without any intent to consummate a trade, undermines the integrity of the market. Traders may not employ deceptive trading schemes simply to drive price. As our action today should make clear, we police the market for this type of activity and will bring charges against those who attempt to illegally game prices for their own advantage."

Mocek Comment: The allegations in this matter involve trading that the CFTC considers to be classic spoofing activity. Spoofing was recently defined by the CFTC to be activity that involves bidding or offering with the intent to cancel a bid or offer before execution. With limited exceptions, if this type of alleged trading had occurred on or after July 16, 2011, then the CFTC would have charged these defendants with violating the new Commodity Exchange Act ("CEA") Section 4c(a)(5). By way of background, Section 747 of Dodd-Frank amended Section 4c(a) of the CEA and gave the CFTC new authority to pursue disruptive practices via CEA Section 4c(a)(5) ("Prohibition of Disruptive Practices"). In addition to spoofing, the new authority gives the CFTC the ability to pursue trading that involves violating bids or offers, or situations when a trader intentionally or recklessly disregards the orderly execution of transactions during the closing period. This case is another shot across the bow by the CFTC to show the world that the Commission has evidence that spoofing is occurring in futures markets. Since the activity in question occurred pre-Dodd-Frank, the CFTC had to plead provisions of the statute that are potentially much harder to prove than the new Prohibition of Disruptive Practices section of the CEA (e.g., manipulation, attempted manipulation). [Lofchie Note: Greg Mocek was formerly head of enforcement at the CFTC.]

View Complaint in full here (links externally to CFTC website).See also: Press Release.