The Commodity Futures Trading Commission (CFTC) uses bounty actions to detect violations of the Commodity Exchange Act (CEA). More specifically, the CFTC offers large financial rewards to investors and financial professionals who expose investment fraud schemes. Further, the agency targets futures contract order cancellation fraud and spoofing schemes. These commodity market manipulation schemes can be the basis of large financial rewards.
What Are Commodity Spoofing Schemes and Commodity Order Fraud Schemes?
A trader “spoofs” when he or she places an order in a futures market with the intention to cancel the order prior to execution. This order fraud manipulates the futures market. More specifically, the scheme misrepresents supply or demand in order to induce other traders to act in a way beneficial to the spoofer. Systematic spoofing and international order fraud schemes violate the CEA and can be the basis of large bounty actions.
What Commodity Spoofing, Order Fraud, and Market Manipulation Schemes Can Be The Basis of Bounty Actions?
The Commission targets several types of spoofing, order fraud and other market manipulation schemes. More specifically, the CFTC wants information regarding schemes causing artificial market moves. Most of these schemes involve quick orders and cancellations of futures contracts.
The CFTC specifically targets schemes with conduct such as traders that place and quickly cancel bids and offers in futures contracts in order to benefit other orders and/or positions. Further, schemes where traders quickly place and cancel at or near the best bid or offer. These schemes typically use opposite-side orders. Additionally, the CFTC target traders who place and cancel multiple orders of the same size repeatedly and simultaneously. Basically, the CFTC targets any scheme designed to cause prices to artificially move.
The CFTC uses its civil authority to charge individuals and companies with spoofing. The key cases regarding spoofing are In re Tower Research Capital LLC, In re Merrill Lynch Commodities, Inc., In re Mohan, In re Gandhi, CFTC v. Zhao, In re Liew, CFTC v. Sarao, or In re Panther Energy Trading LLC and Coscia.