The CFTC Settles Another Spoofing Case

Posted on July 28th, by and in CFTC, Settlements, Spoofing. Comments Off on The CFTC Settles Another Spoofing Case

On July 26, 2017, the U.S. Commodity Futures Trading Commission (“CFTC”) issued an order finding that Simon Posen engaged in the “disruptive practice of ‘spoofing’ (bidding or offering with the intent to cancel the bid or offer before execution).” The CFTC’s findings, which spanned more than three years, beginning at least in December of 2011, indicated that Posen, based in New York City, had traded from his home, using his own account, in violation of Section 4c(a)(5)(C) of the Commodity Exchange Act (7 U.S.C. § 6c(a)(5)(C)), which explicitly outlaws spoofing.

The CFTC found Posen placed thousands of orders in gold, silver, copper, and crude oil futures contracts with the intent to cancel them before execution. These orders were placed so as to move the market prices so that smaller orders, which he would also place on the other side of the … Read More »


The Supreme Court Unanimously Holds SEC Disgorgement Constitutes a “Penalty”

Posted on June 6th, by and in Disgorgement, Statute of Limitations. Comments Off on The Supreme Court Unanimously Holds SEC Disgorgement Constitutes a “Penalty”

On June 5, 2017, the Supreme Court of the United States released its unanimous opinion in Kokesh v. Securities and Exchange Commission and established that “SEC disgorgement constitutes a penalty within the meaning of § 2462” and therefore is restricted by the applicable 5-year statute of limitations. As predicted in our previous blog post, the Court determined that the SEC cannot impose disgorgement fees without regard to statute of limitations.

The Supreme Court determined that SEC disgorgement “bears all the hallmarks of a penalty” and therefore should be subject to the 5-year statute of limitation in § 2462 for three main reasons: (1) “SEC disgorgement is imposed by courts as a consequence for violation” of public laws, i.e. for violations committed against the United States rather than a “aggrieved individual”; (2) “SEC disgorgement is imposed for punitive purposes” such as deterrence, … Read More »


Kokesh v. Securities and Exchange Commission: A New Limitation to the Government’s Enforcement Power?

Posted on April 21st, by and in Disgorgement, Statute of Limitations. Comments Off on Kokesh v. Securities and Exchange Commission: A New Limitation to the Government’s Enforcement Power?

The United States Supreme Court will soon decide whether the SEC can continue to impose disgorgement fees without regard to any statute of limitations. Based on the oral argument in Kokesh v. Securities and Exchange Commission, held on Tuesday, April 18, 2017, it appears likely that the Court will determine that the SEC does not have the wide power it claims in pursuing disgorgement, or the return of profits made from illegal actions.

Background

The petitioner, Charles Kokesh, was the owner of two registered investment advisers. Between 1995 and 2006, he misappropriated $34.9 million from the business development companies operated by the investment advisers. The SEC pursued civil enforcement actions against him in 2009 and the jury found he violated the Securities Exchange Act, the Investment Advisers Act and the Investment Company Act. The United States District Court for the District of … Read More »


The SEC Heightens Its Interest in Robo-Advisers

Posted on March 3rd, by , and in Guidance, OCIE, Robo-advisers. Comments Off on The SEC Heightens Its Interest in Robo-Advisers

Over the last two weeks, the SEC has put robo-advisers on notice that they are on the staff’s radar. First, on February 23, 2017, the SEC’s Division of Investment Management, along with the SEC’s Office of Compliance, Inspections, and Examinations, issued a Guidance Update for robo-advisers. The term “robo-adviser” refers to registered automated investment advisers that provide investment advice that uses computer algorithms. Robo-advisers generally collect information about a client’s financial goals, income, assets, investment horizon, and risk tolerance by way of an online or electronic questionnaire. With limited human interaction, robo-advisers use this information to create and manage investment portfolios for clients. Robo-advisers are often more economical than traditional investment advisers. Robo-advisers, which began as an appeal to millennials, are now widely becoming popular with all age groups and types of investors.

The Guidance Update focused on in three unique … Read More »


Supreme Court Reaffirms Dirks and Tosses Prosecution a Win

Posted on December 8th, by and in Insider Trading. Comments Off on Supreme Court Reaffirms Dirks and Tosses Prosecution a Win

In Salman v. United States, 580 U.S. __ (2016), the U.S. Supreme Court upheld Bassam Salman’s conviction, giving prosecutors a win on the first insider trading case to be heard by the Court in nearly two decades. The unanimous decision, written by Justice Samuel Alito, is short and to the point. The Court reaffirmed the continued validity of Dirks v. S.E.C., 463 U.S. 646 (1983), and determined that a tipper receives a personal benefit by providing insider information to a “trading relative or friend.”

In Dirks, the Court ruled that a tippee’s liability for trading on inside information hinges on whether the tipper breached a fiduciary duty by disclosing the information. The fiduciary duty is breached when the insider will personally benefit, directly or indirectly, from his disclosure. In Salman, the Supreme Court stated that the benefit did not have to … Read More »


Department of Justice Obtains Its Second Spoofing Conviction and Its Novel Cooperation Agreement.

Posted on November 21st, by and in Cooperation, Spoofing. Comments Off on Department of Justice Obtains Its Second Spoofing Conviction and Its Novel Cooperation Agreement.

On the heels of its successful prosecution of Michael Coscia for spoofing, the Department of Justice (“DOJ”) recently secured a guilty plea and cooperation agreement in another high-profile “spoofing” case. By way of background, spoofing is the illegal practice of placing trades on the bid or offer side of a market with the intent to cancel them before execution in order to manipulate prices for personal gain. On November 9, 2016, Londoner Navinder Singh Sarao pleaded guilty to two criminal charges after losing his battle against extradition from the UK.  Despite being charged with 22 counts, including wire fraud, commodities fraud, and spoofing, Mr. Sarao pleaded guilty to just two counts—one count of wire fraud, 18 U.S.C. § 1343 (which carries a maximum of 20 years’ imprisonment and a fine of $250,000) and one count of spoofing, 7 U.S.C. § … Read More »


The Supreme Court Appears Poised to Reaffirm Dirks v. SEC and Maintain Current Insider Trading Rules

Posted on October 19th, by and in Insider Trading. Comments Off on The Supreme Court Appears Poised to Reaffirm Dirks v. SEC and Maintain Current Insider Trading Rules

For the first time in two decades, the Supreme Court heard oral argument in a case that could change the landscape for the government’s pursuit of insider trading violations. In Salman v. United States (Dkt. No. 15-628), the Court reviewed the government’s burden of proof when it prosecutes for insider trading. Specifically, the primary issue involves whether Salman’s “tipper” had received the kind of “personal benefit” required by precedent to hold Salman criminally liable for insider trading. The United States Court of Appeals for the Ninth Circuit affirmed Salman’s conviction. However, just two years ago, the United States Court of Appeals for the Second Circuit overturned the convictions of several insider traders because the government failed to establish that the insiders had received “a potential gain of a pecuniary or similar valuable nature.” In other words, the Second Circuit rejected … Read More »


Sixth Circuit Weighs Challenge to its Jurisdiction in Lawsuit Brought by GOP Committees against the SEC

Posted on July 29th, by and in Municipal Securities. Comments Off on Sixth Circuit Weighs Challenge to its Jurisdiction in Lawsuit Brought by GOP Committees against the SEC

The Republican parties of three states—Tennessee, Georgia, and New York—recently brought a lawsuit in the Sixth Circuit Court of Appeals against the Securities and Exchange Commission to challenge revised Rule G-37, which the Municipal Securities Rulemaking Board (“MSRB”) published earlier this year to limit pay-to-play practices in the municipal securities area. The revision extended Rule G-37 to cover not only brokers and dealers of municipal securities but also municipal advisers. It prohibits those advisers from engaging in municipal advisory business with a municipal entity for two years if the adviser, its staff, or its political action committee made a significant contribution to an official who could influence the award of municipal securities business. The rule also requires certain covered entities, such as municipal advisers, to publicly disclose contributions to government officials. The plaintiffs claim this new extension of the rule … Read More »




From the Blog:

7th Circuit Affirms 1st Conviction For Spoofing

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