Washington, D.C. – Commodity Futures Trading Commission (CFTC) enforcement actions have resulted in penalties for Michael D. Franko of New Jersey and his firm, Victory Asset, Inc., for engaging in a manipulative trading scheme known as spoofing. The CFTC alleges the scheme took place between May 2013 and July 2014, impacting both domestic and international markets.
Spoofing, as defined by the CFTC, involves placing bids or offers with the intention of canceling them before execution, creating a false impression of market demand or supply. Franko allegedly employed this tactic in multiple markets, including copper, gold, and crude oil futures traded on the Commodity Exchange, Inc. (COMEX) and the New York Mercantile Exchange (NYMEX).
The CFTC’s investigation revealed Franko utilized both same-market and cross-market spoofing techniques. In same-market spoofing, he would place a “spoof order” – a large order intended to be canceled – alongside a smaller, legitimate “genuine order” on the same exchange. The spoof order was designed to influence the price of the asset, benefiting the execution of the genuine order.
The scheme extended to cross-market spoofing, where Franko placed spoof orders on one exchange (like COMEX) to manipulate prices in a correlated market on another exchange, specifically the London Metal Exchange (LME). This took advantage of the price relationship between assets traded on both exchanges, particularly in copper futures.
As a result of the CFTC’s findings, Victory Asset, Inc. will pay a civil monetary penalty of $1.8 million. Franko himself will pay $500,000 and is banned from trading in U.S. futures markets for six months. The CFTC orders require both parties to cease and desist from further violations of the Commodity Exchange Act related to spoofing and manipulative schemes.
“Today’s Orders show that the Commission can and will pursue spoofing and manipulation that stretches across different markets,” stated James McDonald, CFTC Director of Enforcement. He also acknowledged the assistance provided by the United Kingdom’s Financial Conduct Authority, CME Group, Inc., and the London Metal Exchange in the investigation. The case was pursued by the CFTC Division of Enforcement’s Spoofing Task Force.
Source: CFTC.gov
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