More business organizations slam US Govt approach in spoofing case

In line with a Court order from late January 2019, Bank Policy Institute (BPI) has filed its brief “amicus curiae” with the Illinois Northern District Court. The document aims to support James Vorley and Cedric Chanu, ex-Deutsche Bank metals traders accused of spoofing.

Let’s note that an “amicus curiae” is someone who is not a party to a case and is not solicited by a party, but who assists a court by offering information that bears on the case. BPI has made it clear that it disagrees with the approach adopted by the US Government in the lawsuit against the former Deutsche Bank traders.

The document, seen by FinanceFeeds, reflects the views of more business groups than initially announced. The brief, filed with the Court on February 6, 2019, is signed by several “Amici Curiae”: Bank Policy Institute (“BPI”), the Chamber of Commerce of the United States of America (“Chamber”), and the Securities Industry and Financial Markets Association (“SIFMA”).

On January 24, 2019, the Court granted BPI’s motion to file an amicus brief. The document says that, because the Chamber and SIFMA share BPI’s concerns regarding the government’s position on the wire fraud statute in this case, the Chamber and SIFMA have filed a motion requesting leave instanter to join this amicus brief.

The Chamber of Commerce of the United States of America represents 300,000 direct members and indirectly represents the interests of more than three million businesses and professional organizations of every size and in every sector and geographic region of the country.

SIFMA is a major trade association for broker-dealers, investment banks and asset managers operating in the U.S. and global capital markets. On behalf of the industry’s nearly one million employees, SIFMA advocates on legislation, regulation and business policy, affecting retail and institutional investors, equity and fixed income markets and related products and services.

In this case, the government alleges that the defendants engaged in “spoofing” in the commodities futures market—i.e., entering orders that the defendants intended to cancel before those orders were executed. BPI, the Chamber and SIFMA argue that, instead of charging this conduct under the Commodity Exchange Act’s (CEA) prohibition on spoofing, the government claims the orders were fraudulent statements that violated the wire fraud statute.

“The government’s theory of wire fraud liability in this case is novel and expansive. It threatens to criminalize conduct that until recently has been addressed under industry- and market-specific laws, rather than amorphous allegations of wire fraud, and threatens to extend criminal liability to legitimate commercial conduct”, the business organizations warn.

According to them, under the government’s theory, making a valid offer to trade on an open market would constitute wire fraud if the party hoped to withdraw the offer before acceptance. BPI, the Chamber and SIFMA says that the government could charge individuals with this crime even in the absence of any misrepresentation to the market, and absent any fiduciary duty that would impose a duty to speak. “Amici” are concerned that this new wire fraud theory, if permitted in this case, could also be applied in broader commercial settings to any open offer capable of forming a binding contract upon acceptance.

As might be expected, the business groups warn that expanding the reach of the criminal wire fraud statute has potential consequences for their members. The point of concern is that, if the government’s theory is ratified by the Court, any offer to enter into a transaction that makes only accurate factual representations and that would result in a binding contract if accepted, could violate the wire fraud statute if the party making the offer also intended, at the time of making the offer, that the offer would not be accepted. This may implicate legitimate, non-fraudulent commercial conduct. It might allow inquiry into the offering party’s subjective intent in new and intrusive ways.

The lawsuit continues at the Illinois Northern District Court.