Precious metals traders accused of spoofing insist stay of CFTC action should be partial

About a week after the Department of Justice (DOJ) and the Commodity Futures Trading Commission (CFTC) filed a set of documents with the Illinois Northern District Court arguing in favor of a complete stay of the CFTC action against Michael Thomas Nowak and Gregg Francis Smith, the traders have objected to the authorities’ arguments.

Let’s recall that 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. On December 13, 2019, the CFTC and the DOJ once again made clear their stance that the civil case should be stayed pending the outcome of the criminal proceedings.

On December 20, 2019, the defendants filed their response to the CFTC and the DOJ. Nowak argues that the stay of the civil case should not be complete and that instead it should be partial, and discovery should be allowed to proceed.

According to Nowak, contrary to the CFTC’s assertions, his request for a stay that protects him from taking actions that might implicate his Fifth Amendment rights, such as responding to pleadings, answering interrogatories, or being deposed, in no way “belies” his assertion that he seeks to resolve this matter as expeditiously as is practicable.

Nowak argues that the defendants have a strong interest in expeditiously resolving serious civil charges brought against them by government agencies.

The trader notes that waiting to begin document discovery until the conclusion of the criminal case will significantly delay the resolution of this matter, particularly because document discovery is likely to be extensive. Commencing document discovery now will avoid undue delay, Nowak says.

In addition, Nowak argues that the CFTC has conducted a lengthy and extensive investigation and presumably obtained extensive evidence, none of which it has shared with the defendants. In that context, a proposal that both sides be permitted to engage in document discovery cannot reasonably be characterized as an attempt to gain a “tactical advantage,” he says.

The defendants urge the Court to reject the CFTC’s arguments and deny the DOJ’s motion for a complete stay of the action.

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.

In its action against Nowak and Smith, the CFTC seeks, among other things, civil monetary penalties, disgorgement, restitution, trading bans, and a permanent injunction against future violations of the federal commodities laws.