Precious metals traders accused of spoofing seek detailed info about alleged violations

Maria Nikolova

Gregg Smith, Michael Nowak, Jeffrey Ruffo, and Christopher Jordan say the Indictment does not identify the purportedly defrauded financial institutions.

The criminal proceedings against three former traders and one former salesperson on the precious metals trading desk of a major international financial firm continue at the Illinois Northern District Court, with the defendants trying to secure more detailed information about the charges against them so that they can adequately prepare for trial.

Earlier this week, Gregg Smith, Michael Nowak, Jeffrey Ruffo, and Christopher Jordan submitted a joint motion for a bill of particulars and to compel the production of materials.

Let’s recall that the fourteen-count Indictment charges the defendants with participation in two conspiracies – a racketeering conspiracy in violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961–1968 (“RICO”), and a conspiracy to manipulate prices, violate several fraud statutes, and engage in spoofing, as well as five substantive offenses: attempted price manipulation, bank fraud, wire fraud affecting a financial institution, commodities fraud, and spoofing.

According to the defendants, this case, at its heart, is about: (a) the alleged placing of bids and offers in the precious metals futures markets with intent to cancel those orders before execution, commonly known as spoofing; and (b) “sparse, conclusory allegations of purportedly fraudulent but unspecified trading activity” relating to barrier options, described by the government as “barrier-running” and “barrier-defending.”

According to the document filed by the defendants on May 26, 2020, and seen by FinanceFeeds, the Indictment lacks certain critical details necessary to apprise the defendants of the charges against them, substantially impeding their ability to adequately prepare for trial.

For instance, the Indictment charges bank fraud and wire fraud affecting a financial institution, and both are predicates to the two alleged conspiracies; but the Indictment does not identify the financial institutions purportedly defrauded through the alleged bank fraud, nor those purportedly affected by the alleged wire fraud.

Furthermore, the Indictment alleges that the defendants and their purported co-conspirators “defrauded clients” through the “unlawful practice” of barrier-running and -defending by placing orders in a manner that was intended to “deliberately trigger barrier options held by Bank A” and “deliberately avoid triggering barrier options held by clients of Bank A,”, but does not identify any relevant options contracts, trades, counterparties, or supposed misrepresentations or omissions or other fraudulent conduct.

Also, the Indictment alleges that certain of the defendants and their purported co-conspirators at times placed deceptive orders through telephone calls to floor brokers in trading pits,”, but does not identify which defendants or co-conspirators, nor any such orders.

The defendants also note that the Indictment alleges that Mr Ruffo, formerly a non-trading senior salesperson on Bank A’s precious metals desk, participated in the conspiracies charged in Counts One and Two, contending that, concerning an order of client Hedge Fund E, Ruffo would receive the order and communicate it to Mr. Smith, who, with Ruffo’s knowledge and encouragement, would then place deceptive orders. But the Indictment fails to specify any particular order or trade allegedly fitting this generic description, or any alleged conduct constituting “encouragement” at any time concerning any order or trade.

According to the defendants, these details cannot be discerned from the more than 21 million pages of documents, four terabytes of data, and 2,200 hours of audio tapes produced by the government in discovery to date. Accordingly, the defendants ask that the Court direct the government to file a bill of particulars with respect to these issues.

Moreover, the defendants state that while the government has agreed to disclose the criteria it used to select the 54,456 purported spoofing sequences that provide the basis for the charges from among the ten years of market data produced to date, it has refused to identify the allegedly deceptive and genuine orders within each sequence. Without this information, the defense is said to be unable to identify with sufficient certainty which orders the government contends defrauded other market participants and which orders it contends were designed to benefit from those purportedly fraudulent orders, and thus cannot sufficiently scrutinize the government’s claims (and the bases for those claims) so as to draw out the flaws in the government’s reasoning and respond to those claims at trial.

Finally, the government has produced written reports of fifty-five interviews and at least some agents’ notes for eighteen of those interviews, but no notes of the other thirty-seven.

Accordingly, the defendants ask that the Court compel the government to (i) identify and produce all Brady material, (ii) identify the allegedly deceptive and genuine orders within each alleged sequence, and (iii) produce all interview notes that contain any substantive information that differs from or is not reflected in the corresponding reports.

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