CFTC still unable to confer with Australian trader accused of spoofing

Maria Nikolova

The regulator, however, has managed to serve Jiongsheng (“Jim”) Zhao with the Summons and Complaint earlier this week.

The United States Commodity Futures Trading Commission (CFTC) is still unable to confer with the Australian trader it accuses of spoofing. Earlier today, the US regulator filed a motion with the Illinois Northern District Court asking for a temporary stay of the deadlines for submitting an initial status conference and initial status report.

The CFTC explains that it served the defendant – Jiongsheng (“Jim”) Zhao, with the Summons and Complaint in this case on September 18, 2018. The regulator, however, remains unable to confer with the defendant at this time as required under Federal Rule of Civil Procedure 26(f).

Zhao is still 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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