EDITOR NOTE: Another spoof trades case in the precious metals market, another steep financial penalty, and another jailed trader--this time from Deutsche Bank. Unlike JP Morgan, the crime didn’t go to the extent of prolonged price suppression. In general, that’s what central banks and governments do--except it’s called policy instead of crime, even if it robs you of your hard-earned wealth. In DB’s case, it's a rather simple bait-and-switch, a means to get into a market position at an advantageous rate, albeit via fraudulent means; one that’s estimated to have cost other traders losses of around a million dollars. There certainly have been worse cases. But as with all manipulative market operations in which banks are caught red-handed, such incidents affirm the cheating nature that’s systemically embedded within the culture of banking. It makes you wonder in what other areas (where they haven’t been caught) might many banks be cheating customers and investors for a handsome profit.
London — ¯A former Deutsche Bank precious-metals trader was ordered to serve one year and a day in prison for manipulating gold and silver prices with bogus “spoof” trade orders between 2008 and 2013.
James Vorley, 41, who was convicted of fraud in September, harmed “the integrity of the financial markets,” US District Judge John Tharp said in Chicago. Vorley’s former co-worker, Cedric Chanu, is scheduled to be sentenced on June 28.
Citing more than $1m in losses by other traders and thousands of trades by Vorley and Chanu, the judge said he wanted to send a message that there are consequences for market manipulation. “A serious offence is worth a serious sentence,” he said.
The prosecution of Vorley and Chanu was part of a US crackdown on illegal spoofing cases since the global market “flash crash” in 2010. In January, Deutsche Bank agreed to pay more than $130m to settle criminal and civil charges that included spoofing, and JPMorgan Chase admitted its traders manipulated markets and agreed to pay a record $920m fine.
Vorley told the judge he was remorseful and that since he was charged, life had been hard for him and his family. The judge rejected a request by Vorley’s lawyer that the sentence be served in home confinement in London, where the former trader lives.
Chanu and Vorley were convicted after a weeklong jury trial, which included witnesses describing the bait-and-switch scheme to influence prices and transcripts of messages sent by the traders showing they knew what they were doing was wrong. In one instance, Vorley wrote: “This spoofing is annoying me. It’s illegal for a start.”
Spoofing occurs when a trader enters buy or sell orders and then cancels them before they are executed, creating a false market indicator that can generate profit by taking the opposite position. While cancelling orders isn’t prohibited, the 2010 Dodd-Frank Act makes it illegal to place orders with no intention of executing them.
The star witness at the trial was a former Deutsche Bank co-worker, David Liew, who told the jury he learnt from Chanu and Vorley how to use spoof trades to manipulate prices. Liew faces his own criminal charges and agreed to co-operate with the government.
Originally posted on BusinessLive