US Govt seeks 366-day imprisonment sentence for Australian trader accused of spoofing

As the sentencing of Jiongsheng (“Jim”) Zhao, an Australian trader accused of spoofing, approaches, the parties in the criminal case against him have filed the sentencing memoranda.

Documents submitted at the Illinois Northern District Court and seen by FinanceFeeds reveal that the US Government is seeking a sentence of one year and one day imprisonment for the defendant with credit for time served in United States and Australian facilities.

Based on the government’s calculations, the defendant was in custody (in both the United States and Australia) for 302 days, running from January 29 through November 26, 2018. In the government’s calculation, adding the full amount of good conduct time potentially available to the defendant to the time that he has already spent in custody results in 356 days (54 + 302), would leave 10 additional days to serve on a 366-day sentence.

According to the Government, the nature and circumstances of Zhao’s offense supports the recommended sentence. The defendant engaged in a spoofing scheme for almost four years during which he engaged in manipulative and fraudulent trading activity that affected hundreds of other market participants who were deceived into trading at worse prices – buying at a higher price, or selling at a lower price – than they otherwise likely would have.

While the defendant’s overall profit directly tied to the Spoof Orders was relatively small, the defendant placed thousands of these orders that caused hundreds of market participants to trade at artificial prices. And when confronted by the CME with his unlawful trading, the defendant lied in order to cover up his spoofing conduct and even used his attorney as a conduit to convey false information to the CME.

Importantly, for sentencing, the defendant chose to cooperate shortly after his extradition from Australia to the United States. He met with the government and provided valuable information in connection with the government’s ongoing investigation. Based in part on the defendant’s cooperation, on January 21, 2020, the government entered into a deferred prosecution agreement (DPA) with the defendant’s former employer, Propex, to resolve criminal charges related to the defendant’s unlawful trading activity. As part of the DPA, Propex agreed to, inter alia, pay $1 million that is comprised of a criminal monetary penalty, criminal disgorgement, and victim compensation. According to the US Government, the defendant’s sentence should credit his immediate, full, and candid proffer of information and acceptance of responsibility.

In addition to any sentence imposed in this case, the defendant will be specifically deterred by the collateral consequences of his felony conviction, including a ban from trading on any market regulated by the CFTC for at least five years.

Regarding restitution, the Government notes that about a year ago the Court granted the government’s unopposed motion to authorize alternative victim notification procedures in this case, through publication on a website maintained and updated by the Department of Justice. Pursuant to the Court’s order, the government has published and periodically updated its victim notification webpage, including a request to receive any victim impact statements by no later than January 31, 2020. To date, the government has not received any victim impact statements from potential victims.

In the defendant’s plea agreement, the parties agreed to the payment of restitution, and the government has calculated that the defendant’s unlawful trading activity resulted in approximately $464,000 in losses to market participants. According to the Government, Zhao’s restitution obligation should be joint and several with that of his employer, Propex.