High-Frequency Trader Indicted for Manipulating Commodities Futures Markets

CHICAGO ― In the first federal prosecution of its kind, a high-frequency trader was indicted for allegedly manipulating commodities futures prices and illegally profiting nearly $1.6 million as a result of trading orders he placed through CME Group and European futures markets in 2011.

The defendant, MICHAEL COSCIA, was the manager and sole owner of the former Panther Energy Trading LLC, of Red Bank, N.J., which he formed in 2007.

Coscia, 52, of Rumson, N.J., a registered commodities trader since 1988, was charged with six counts of commodities fraud and six counts of “spoofing” in a 12-count indictment returned yesterday by a federal grand jury, Zachary T. Fardon, United States Attorney for the Northern District of Illinois, and Robert J. Holley, Special Agent-in-Charge of the Chicago Office of the Federal Bureau of Investigation, announced today.

The indictment marks the first federal prosecution nationwide under the anti-spoofing provision that was added to the Commodity Exchange Act by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.

Coscia will be arraigned on a date to be determined in U.S. District Court in Chicago.

“Traders and investors deserve a level playing field, and when the field is tilted by market manipulators, regardless of their speed or sophistication, we will prosecute criminal violations to help ensure fairness and restore market integrity,” Mr. Fardon said. “This case reflects the reasons why, earlier this year, we established a Securities and Commodities Fraud Section, which is dedicated to protecting markets and preserving investors’ confidence,” he added.

According to the indictment, high-frequency trading is a form of automated trading that uses computer algorithms for decision-making and placing a high volume of trading orders, quotes, or cancelation of orders in milliseconds. Coscia designed two computer programs he allegedly used in 17 different CME Group markets and three different markets on the London-based ICE Futures Europe exchange, including gold, soybean meal, soybean oil, high-grade copper, Euro FX and Pounds FX currency futures, to implement his fraudulent strategy.

Between August and October 2011, Coscia allegedly defrauded participants in the CME Group and ICE Futures Europe markets. In August 2011, Coscia began a high-frequency trading strategy in which he entered large-volume orders that he intended to immediately cancel before they could be filled by other traders, the indictment alleges.

Coscia devised this strategy to create a false impression regarding the number of contracts available in the market, and to fraudulently induce other market participants to react to the deceptive market information he created, the indictment states. His strategy moved the markets in a direction favorable to him, enabling him to purchase contracts at prices lower than, or sell contracts at prices higher than, the prices available in the market before he entered and canceled his large-volume orders, it adds.

Coscia then allegedly repeated this strategy in the opposite direction to immediately obtain a profit by buying futures contracts at a lower price than he paid for them, or by selling contracts at a higher price than he paid for them. Each such trade allegedly occurred in a matter of milliseconds. As a result of the aggregate of those fraudulent high-frequency trades, Coscia illegally profited approximately $1,592,867 over approximately three months, the indictment alleges.

As part of the scheme, Coscia’s trading programs looked for market conditions such as price stability, low volume at the best prices, and a narrow difference between the prices at which prospective purchasers were willing to buy and prospective sellers were willing to sell because his allegedly fraudulent trading strategy relied on these market conditions.

The indictment alleges that Coscia implemented this strategy in 17 different CME Group markets and three different markets on the London-based ICE Futures Europe exchange, including gold, soybean meal, soybean oil, high-grade copper, Euro FX and Pounds FX currency futures.

As a result of his alleged scheme, Coscia will be arraigned in U.S. District Court in Chicago on a date to be determined.

Defendant: MICHAEL COSCIA

Criminal Charges: Six counts of commodities fraud and six counts of “spoofing”

City and State: Chicago, Illinois

Date: August 2011-October 2011 (crime date)

Sentence or Outcome: Currently pending

Dollar Amounts: $1,592,867

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