Extradition procedure weighs on CFTC action against Australian trader accused of spoofing

Maria Nikolova

Jiongsheng (“Jim”) Zhao is currently in police custody in Australia, and is still awaiting extradition to the United States, so the CFTC asks for a brief stay of the civil proceedings against him.

The United States Commodity Futures Trading Commission (CFTC) will need more time to proceed with its civil lawsuit against Jiongsheng (“Jim”) Zhao, an Australian trader accused of spoofing. This is indicated by documents filed by the US regulator with the Illinois Northern District Court on Thursday, June 14, 2018.

The CFTC informs the Court that it remains unable to confer presently with Zhao as required. Accordingly, the regulator requests that the Court temporarily stays the deadlines for an initial status conference and a status report. Zhao is currently in police custody in Australia, and is awaiting extradition to the United States in connection with a criminal case filed against him in the Illinois Northern District Court.

On May 21, 2018, Zhao consented to extradition to the United States.

Even with Zhao’s consent, however, before his extradition can occur, the Australian Attorney General must authorize and sign a surrender order that formally authorizes the extradition. After that order is issued, the United States has sixty days under the extradition treaty to take custody of Zhao and bring him to the United States for prosecution. Accordingly, until Australia issues the surrender order, and the United States is able to take Zhao into custody and bring him to the United States to make an initial appearance, he remains unavailable for prosecution in the United States.

This has been the reason for the delay in the criminal proceedings against Zhao too.

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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