FIA joins opponents of US Govt approach in lawsuit targeting ex-Deutsche Bank traders

Shortly after Bank Policy Institute (BPI), the Chamber of Commerce of the United States of America, and the Securities Industry and Financial Markets Association (SIFMA), made it clear that they object to the US Government’s approach in a lawsuit against James Vorley and Cedric Chanu, ex-Deutsche Bank traders accused of spoofing, the Futures Industry Association (FIA) wants to join this group of opponents.

On February 14, 2019, FIA submitted a motion at the Illinois Northern District Court, asking to file a brief amicus curiae in support of the defendants’ motion to dismiss the indictment. The proposed brief is set to explain the risks of harm to the vitality of futures markets posed by the Government’s theory of wire fraud liability.

According to FIA, the indictment‘s legal theory – that wire fraud liability can rest on the premise that open, executable orders for futures contracts, by themselves, can be deemed implied misrepresentations of an intention to trade – threatens the vitality of the markets. The Association insists that treating unexpressed intentions and strategies underlying executable orders as misrepresentations could create substantial legal uncertainty over the scope of trader liability not just for wire fraud but also for civil claims based on the same premise.

FIA argues that, if accepted, the Government’s theory of liability poses a serious risk of chilling legitimate, non-fraudulent trading by FIA’a members and other markets participants, many of whom engage in trading to hedge commercial and other business risks.

FIA objects to the Government’s attempt to expand the wire fraud statute in a new way that unnecessarily invites harm to legitimate trading.

Let’s recall that, in this case, the government alleges that the defendants engaged in “spoofing” in the commodities futures market—i.e., entering orders that the defendants intended to cancel before those orders were executed.

BPI’s, the Chamber’s and SIFMA’s arguments are similar to those raised by FIA. According to them, instead of charging this conduct under the Commodity Exchange Act’s (CEA) prohibition on spoofing, the government claims the orders were fraudulent statements that violated the wire fraud statute.

“The government’s theory of wire fraud liability in this case is novel and expansive. It threatens to criminalize conduct that until recently has been addressed under industry- and market-specific laws, rather than amorphous allegations of wire fraud, and threatens to extend criminal liability to legitimate commercial conduct”, the business organizations have warned.

The defendants have consented to FIA’s request to file a brief. Counsel for the Department of Justice (DOJ) have advised FIA they take no position on the motion.