CFTC obtains further stay of proceedings against Australian trader accused of spoofing

Maria Nikolova

Jiongsheng (“Jim”) Zhao remains in police custody in Australia, and is awaiting extradition to the United States in connection with a criminal case filed against him in Illinois.

The Honorable Sara L. Ellis of the Illinois Northern District Court on Monday granted the request by the Commodity Futures Trading Commission (CFTC) for a for a temporary stay of some of the deadlines in the case against Jiongsheng (“Jim”) Zhao, an Australian trader accused of engaging in an illicit trading practice known as “spoofing”.

The Court strikes the initial status date set for October 2, 2018 and resets it to January 23, 2019., with an initial status report due by January 16, 2019.

The CFTC has explained that it served the defendant with the Summons and Complaint in this case on September 18, 2018. The regulator, however, is still unable to confer with the defendant at this time.

Zhao remains in police custody in Australia, and is awaiting extradition to the United States in connection with a criminal case filed against him in Illinois.

On May 21, 2018, Zhao consented to extradition the United States. However, “before his extradition can occur, the Australian Attorney General must authorize and sign a surrender order that formally authorizes the extradition”—giving the United States sixty days to take custody of Zhao and bring him to the United States for prosecution. The CFTC is also not aware if Zhao has retained counsel.

In its Complaint, the CFTC alleges that from at least July 2012 through at least March 2017, Zhao repeatedly engaged in manipulative or deceptive acts in the E-mini S&P 500 futures contract market on the Chicago Mercantile Exchange (CME). Zhao is alleged to have employed a practice known as “spoofing” (bidding or offering with the intent to cancel the bid or offer before execution). He placed an order that he wanted to execute and thereafter entered a larger order on the opposite side of the market that he intended to cancel before execution. In placing these larger spoof orders, Zhao intentionally or recklessly sent false signals of increased supply or demand designed to trick market participants into executing against the orders he wanted filled.

Zhao is alleged to have engaged in the deceptive pattern approximately 2,300 times, which included 3,100 discrete instances of spoofing.

The CFTC is seeking civil monetary penalties, disgorgement of ill-gotten gains, trading and registration bans, and a permanent injunction against further violations of the federal commodities laws.

The case is captioned Commodity Futures Trading Commission v. Zhao (1:18-cv-00620).

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