CFTC Enforcement Actions and Decisions of Note: Extensive Spoofing in Crude Oil Futures

Orrick, Herrington & Sutcliffe LLP

Orrick, Herrington & Sutcliffe LLP

Continuing its aggressive enforcement of the anti-spoofing law enacted under the 2010 Dodd Frank Act, the CFTC recently filed an enforcement action—currently being litigated—against Roman Banoczay Jr., Roman Banoczay Sr., and their company BAZUR Spol. S.R.O., charging them with spoofing and engaging in a manipulative and deceptive scheme in the crude oil futures markets. CFTC v. Banoczay, Jr. et al, 20 Civ. 05777 (N.D.Ill.) (The complaint names Banoczay Jr.’s father and their company because he placed the violative trades through their accounts.) “Spoofing” is defined by statute as placing a bid or offer with the intent to cancel before execution. See 7 U.S.C. § 6c(a)(5)(C).

According to the complaint filed on September 29, 2020, in federal district court for the Northern District of Illinois, shortly after Mr. Banoczay Jr. suffered a string of trading losses in early 2018, he developed a “spoofing strategy” in which he engaged in spoofing on more than 2,000 occasions in less than a month trading crude oil futures on CME’s Globex electronic trading platform. More specifically, his spoofing activity increased from an average of twenty-seven times per day to an average of over 200 times per day, reaching 700 times on a single day. Through this trading activity, Banoczay Jr. allegedly was able to recoup some of his earlier losses, including earning more than $332,000 in profits over one eight-day period.

The CFTC describes Mr. Banoczay’s spoofing “scheme” as following a general pattern:

(i) placing a small order (between one and [40] lots) for [c]rude [o]il futures that he intended to execute (“Genuine Orders”); (ii) within seconds before or after entering a Genuine Order, placing a series of much larger resting orders (almost 97% of which were [40] lots each) in rapid succession at various price levels on the opposite side of the market, which he intended to cancel before execution (“Layered Spoof Orders”); and (iii) canceling his Layered Spoof Orders within seconds of his Genuine Order being filled.

The complaint alleges that the purpose of the “Layered Spoof Orders” that Mr. Banoczay placed on one side of the market was to send false signals of increased buying or selling interest designed to trick market participants into executing the orders the defendants wanted filled.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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