CFTC has trouble obtaining service on Australian trader accused of spoofing

Maria Nikolova

The CFTC anticipates service to occur within the next 30-45 days but such service requires assistance from third parties as the defendant is a resident of Australia, is in police custody in Australia, and is awaiting extradition to the United States.

Less than a month after the United States Commodity Futures Trading Commission (CFTC) filed charges against Jiongsheng Zhao, an Australian trader, accusing him of spoofing and engaging in a manipulative and deceptive scheme, the regulator is asking the Illinois Northern District Court to stay deadlines in the proceedings. The reason for the request is that the CFTC is still in the process of obtaining service on Mr Zhao.

In a filing with the Court on February 26, 2018, the CFTC explains that it anticipates service to occur within the next thirty to forty-five days. However, such service requires assistance from third parties because Mr Zhao is a resident of Australia, is in police custody in Australia, and is awaiting extradition to the United States in connection with a criminal case filed against him in this Court.

The request demonstrates the formal obstacles that US regulators face when they try to prosecute foreign nationals.

The United States anticipates that extradition proceedings will likely continue for more than sixty days.

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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