Precious metals traders accused of spoofing seek to dismiss charges in criminal case

Maria Nikolova

Gregg Smith, Michael Nowak, Jeffrey Ruffo, and Christopher Jordan try to nix indictment against them.

The criminal proceedings targeting 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 seeking to rebuff the allegations against them.

On February 28, 2020, Gregg Smith, Michael Nowak, Jeffrey Ruffo, and Christopher Jordan submitted a motion to dismiss Counts One, Two (in part), and Three through Fourteen and to strike prejudicial surplusage in Paragraphs 40 and 41 of the Superseding Indictment. 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.”

The defendants argue that the Indictment’s core flaw is that, as alleged, the market activity undertaken by the defendants does not constitute fraud. The defendants insist that the alleged spoof orders placed by them were real, executable, open-market orders. Similarly, in the defendants’ view, “the bare-bones allegations regarding barrier-related trading activity do not make out an actionable theory of fraud”. Accordingly, they argue that the substantive counts of bank fraud, wire fraud, and commodities fraud must be dismissed, along with the corresponding portions of the two conspiracy counts.

Furthermore, with respect to the bank fraud counts, the defendants argue that there is no allegation that they had the requisite specific intent to defraud a financial institution in connection with this purported conduct. Because the precious metals futures trading alleged in the Indictment occurred on anonymous CME Group exchanges, the defendants could not have known whether they were trading with a financial institution and thus could not have specifically intended to defraud one.

The allegations regarding barrier options do not even assert that the clients purportedly defrauded were financial institutions, according to the defendants.

In addition, the defendants say that the Indictment’s characterization of spoofing as fraud in violation of the bank, wire, and commodities fraud statutes violates their rights to due process because, at the time of the alleged conduct, neither the statutory framework and related guidance nor prior prosecutions gave fair notice that the conduct could be considered fraudulent. The fraud statutes are therefore unconstitutionally vague, the defendants conclude. Hence, the substantive fraud and conspiracy counts should be dismissed for that reason as well.

Because spoofing and barrier-running are not fraudulent conduct, that alleged activity cannot constitute predicate acts of bank or wire fraud for purposes of the RICO conspiracy charge, and that charge must be dismissed, according to the defendants’ motion to dismiss. Moreover, they say, that activity does not constitute a “pattern” as RICO requires, also warranting dismissal of the charge.

Finally, the defendants argue that the substantive counts, Counts Three through Fourteen, must be dismissed because they variously lack specificity as to the trading sequences at issue, are impermissibly duplicitous, and purport to charge trading activity outside the applicable statutes of limitations; and that Paragraphs 40 and 41 of the Indictment contain prejudicial surplusage concerning a prior, unrelated investigation, which should be stricken.

Read this next

Digital Assets

FTX Japan has until March to return customer assets

The Kanto finance bureau of Japan’s Ministry of Finance (MoF) said it will extend its business suspension order for FTX Japan, the Japanese arm of the beleaguered crypto exchange FTX.com.

Executive Moves

Johan Wiese replaces Richard as director of IG South Africa

IG Group, Europe’s largest online trading platform, has relocated its Finance Chief Operating Officer (COO) Johan Wiese to join its South Africa business as a director.

Digital Assets

Nexo continues European expansion with Polish licence

Crypto lender Nexo said today that it had been registered as a virtual currency operator with the Ministry of Finance in Poland, which enables its European-based entity to provide services to the country’s residents lawfully.

Digital Assets

Wirex expands crypto lineup to 130 tokens

Payment and crypto wallet provider Wirex has listed 52 new tokens on their app, bringing the total number of supported digital assets to 130, alongside 13 fiat currencies.

Executive Moves

Capital.com lures IG’s long-serving exec Greg Adams

Multi-licensed online brokerage group Capital.com has appointed Greg Adams, who spent the bulk of his two-decade career at IG Group, as its newest head of risk.

Digital Assets

Farcana and Dravus join forces to line up sustainable mining power sources

As a result of growing ecological awareness, the sector’s top companies have been working to achieve effective cryptocurrency mining while still being energy-efficient: e.g. using mining facilities fueled by renewable power and located in colder regions to lower heat-dissipation costs.

Retail FX

Vantage to expand swap-free trading offering after savings of $1 million in gold XAUUSD

The swap-free product enhancement was designed to provide greater convenience for gold XAUUSD traders. Clients are not charged overnight fees when trading across all trading accounts, including on the Vantage App, regardless of trade size.

Digital Assets

Bosonic launches Cross Custodian Net Settlement to further eliminate settlement risk

Bosonic has announced the go-live of Cross Custodian Net Settlement (CCNS) in which trades in USDC and ETH were executed, cleared, and settled atomically between two digital asset custodians, First Digital in Hong Kong and Propine in Singapore.

Industry News

IntraFi taps Broadridge to offer loans to costumers of brokers, advisors, and RIAs

“Broadridge’s partnership with IntraFi expands the availability of securities-based lending to previously underserved parts of the market — community and regional banks, independent broker-dealers, and unaffiliated advisors and RIAs.”

<