Seventh Circuit Upholds First-Ever “Spoofing” Conviction

by Eversheds Sutherland (US) LLP

Eversheds Sutherland (US) LLP

On August 8, 2017, a three-judge panel of the US Court of Appeals for the Seventh Circuit unanimously upheld the first-ever criminal conviction of a New Jersey futures trader for the manipulative trading practice known as “spoofing.” The court affirmed his November 2015 jury conviction, for which he was sentenced to three years in prison.

“Spoofing” is a market manipulation tactic criminalized under the Dodd-Frank Act that involves placing bids to buy or sell securities with the intent to cancel them before execution. This tactic creates an illusion of supply and demand that artificially manipulates the market for the underlying securities. The spoofer then places legitimate trades to capitalize on the artificial price arbitrage. This scheme is typically leveraged in high-frequency trading, which often deals in high volumes of transactions sufficient to manipulate securities pricing within fractions of a second.

Here, defendant Michael Coscia commissioned and employed high-frequency trading methodologies and computer algorithms to rapidly place large and small trade orders on opposite sides of various commodities markets, including gold, soybean oil and high-grade copper. The large orders allegedly created an illusory supply or demand that artificially moved the market in the underlying commodities, which his legitimate small orders capitalized on. Coscia allegedly cancelled the large orders before they could be fulfilled, typically within fractions of a second after placing them. At trial, prosecutors said that his scheme allowed him to make $1.4 million in less than three months in 2011. In addition, they asserted that his manipulation caused economic loss to other traders and market participants.

On appeal, Coscia argued that the Dodd Frank Act’s anti-spoofing provision was unconstitutionally vague and that the evidence prosecutors presented at trial was insufficient to prove his intent to cancel his trade orders before execution. Coscia also asserted that the provision could give rise to arbitrary enforcement, especially for the activity of high-frequency traders, which often involves a large number of cancelled orders. 

But the Seventh Circuit panel rejected Coscia’s arguments, holding that the anti-spoofing provision is not unconstitutionally vague because it “provides clear notice and does not allow for arbitrary enforcement” because it requires “the intent to cancel the bid or offer before execution.” In so finding the requisite intent, the court appeared persuaded by the testimony of the computer algorithm designer. At trial, the designer testified about how Coscia wanted his trading algorithms designed to “act like a decoy” and automatically cancel large orders while consummating the small orders. The court also relied on evidence contrasting Coscia’s trading patterns with those of legitimate high-frequency traders.

The Seventh Circuit’s decision is likely to have a significant impact beyond the case at issue. First, the ruling that the anti-spoofing provision is not unconstitutionally vague and does not authorize arbitrary enforcement will certainly be considered both by other Circuits facing similar challenges to the provision and by the government in its future enforcement efforts. 

Second, while the decision puts high-frequency traders on alert regarding potential liability for cancelled orders, the court did provide the financial industry with some comfort: legitimate trade orders cancelled following a condition subsequent (e.g., stop-loss orders) differ from spoofing orders that are never intended to be filled. In addition to some recent spoofing settlements individuals have made with the Department of Justice,1 the Securities and Exchange Commission (SEC) has brought a series of enforcement cases involving spoofing,2 and the Staff has publicly stated its continued focus on these manipulative schemes.3

Further criminal and civil enforcement efforts against spoofing are anticipated after this favorable decision for the government. Key factors in future cases are likely to include whether the size of the at-issue trades is consistent with the advance intent to cancel trades to manipulate the market.

1See, e.g., Brian Louis, Flash Crash Trade Sarao Pleads Guilty to Fraud, Spoofing, BLOOMBERG, Nov. 9, 2016,; Becky Yerak, Commodities trader pleads guilty to ‘spoofing,’ is cooperating with authorities, CHI. TRIB., Jun. 2, 2017,
2See, e.g., In the Matter of Briargate Trading, LLC and Eric Oscher, Exchange Act Release No. 76104 (Oct. 8, 2015); SEC v. Milrud, No. 15-CV-00237-KM-SCM (D.N.J. Jan. 13, 2015); In the Matter of Visionary Trading LLC, Lightspeed Trading LLC, Andrew Actman, Joseph Dondero, Eugene Giaquinto, Lee Heiss and Jason Medvin, Exchange Act Release No. 71871 (Apr. 4, 2014).
3 Andrew Ceresney, Director, SEC Division of Enforcement, Market Structure Enforcement: Looking Back and Forward (Nov. 2, 2015).

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.

© Eversheds Sutherland (US) LLP | Attorney Advertising

Written by:

Eversheds Sutherland (US) LLP

Eversheds Sutherland (US) LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.