Eric Schwartz pays CFTC penalty to settle market-manipulation case

The agency said Eric Schwartz of Chicago, Illinois will pay $100,000 in fines to resolve a a case accusing him of spoofing in the energy market.

In addition to the monetary sanctions, the order prohibits the defendant from trading in commodity interests and registering with the CFTC in any capacity for four months. It also requires him to cease and desist from violating the CEA’s prohibitions on spoofing and other deceptive schemes.

Schwartz engaged in this strategy in multiple brokerage accounts that he controlled, sometimes simultaneously trading in the same security on multiple accounts.

The case covers a four-month period in mid-2020 and relates to the practice of “spoofing,” where traders put in large orders to buy or sell a security with no intention of executing them, creating the appearance of demand or supply for a particular asset and helping move that asset in the trader’s desired direction.

It’s unlawful to submit and cancel orders in a strategy intended to deceive other traders, the CFTC said.

The complaint described a few examples of the alleged plot, explaining that a broker dealer where Schwartz had held his account spotted his manipulative trades, and then he closed his account.

“Specifically, the order finds that Schwartz spoofed—defined in the Commodity Exchange Act (CEA) as bidding or offering with the intent to cancel the bid or offer before execution—in calendar spreads involving Natural Gas (NG) and Reformulated Blendstock for Oxygenate Blending Gasoline (RBOB) futures contracts on the Chicago Mercantile Exchange on multiple occasions from approximately April 2020 to July 2020,” the CFTC said.

The case is the latest in a series of prosecutions brought by US regulators as they have cracked down on spoofing. Last year, JPMorgan Chase and two subsidiaries have reached a settlement agreement with US regulator to pay $60 million to resolve civil and criminal charges that its traders rigged precious metals futures and options.

The fine wraps up a long-running lawsuit that saw federal prosecutors at the Justice Department Fraud Section and top US regulators, the Commodity Futures Trading Commission and Securities and Exchange Commission, involved in the probes.

Spoofing, in general, is a practice in which a trader floods the market with fake orders by entering and quickly cancelling large buy or sell orders on an exchange, to fool other traders into thinking the market is poised to rise or fall. Though the tactic has long been used by some traders, regulators began clamping down on the practice only a few years ago.