DOJ seeks to intervene in CFTC action against precious metals traders accused of spoofing

Less than two months have passed since the United States Commodity Futures Trading Commission (CFTC) launched a lawsuit against traders Michael Thomas Nowak and Gregg Francis Smith accusing them of spoofing.

Now, the Department of Justice is seeking to put the CFTC action on hold. This is indicated by documents filed with the Illinois Northern District Court on October 31, 2019, and seen by FinanceFeeds.

Robert Zink, Chief of the Fraud Section of the Criminal Division of the DOJ (i) seeks leave to intervene in the civil action; and (ii) moves for a stay of the CFTC action through the conclusion of the parallel criminal prosecution – United States v. Smith, et al., Case No. 19 CR 669 (N.D. Ill.).

In its Motion, the DOJ notes that the criminal case includes both defendants to this civil case – Michael Nowak and Gregg Smith – and substantially the same conduct, events, and time period. The government argues that the requested stay would benefit the Court and all parties by minimizing redundant litigation, narrowing the scope of discovery and issues to be adjudicated in this case, and relieving Nowak and Smith of the choice of having to choose between potentially invoking their rights against self-incrimination in this civil case (which invocation could be used against them in this case) or testifying in this case (which testimony could be used against them in the criminal case).

Further, according to the DOJ, a stay is needed to preclude Nowak and Smith from impermissibly taking advantage of the civil discovery process to circumvent the limitations on criminal discovery that protect the integrity of criminal prosecutions, and to allow the defendants the ability to focus their resources on defending the pending criminal case.

On October 25, 2019, the government conferred with counsel for Nowak and Smith who each stated that they oppose the stay requested in this motion. The plaintiff in the civil action, the Commodity Futures Trading Commission, does not oppose the stay requested by the DOJ.

The CFTC charges the defendants with spoofing, engaging in a manipulative and deceptive scheme, and attempting to manipulate prices in the precious metals futures markets while employed at a major US bank.

According to the CFTC complaint, from at least 2008 and continuing through at least 2015, Nowak and Smith repeatedly engaged in manipulative or deceptive acts and practices by spoofing (bidding or offering with the intent to cancel the bid or offer before execution) while placing orders for and trading precious metals futures contracts on CME Group Inc.’s exchanges. The defendants are alleged to have placed thousands of orders with the intention to cancel them in order to send false signals of increased buying or selling interest designed to trick market participants into executing the orders the defendants wanted filled. The complaint also alleges that Nowak and Smith engaged in spoofing with the intent to manipulate market prices and create artificial prices, and thereby enable their orders to be filled sooner, at a better price, or in larger quantities than they otherwise would.

The US regulator seeks, inter alia, civil monetary penalties, disgorgement, restitution, trading bans, and a permanent injunction against future violations of the federal commodities laws.