The US CFTC has entered into non-prosecution agreements with the former Citigroup Global Markets traders – Jeremy Lao of New York, New York, Daniel Liao (of Minato-Ku, Japan, and Shlomo Salant of New York, New York.
In their non-prosecution agreements, Lao, Liao, and Salant each admits that he engaged in the unlawful disruptive trade practice of “spoofing” (bidding or offering with the intent to cancel the bid or offer before execution) in US Treasury futures markets while trading for Citigroup Global Markets Inc. (Citigroup) in 2011 and 2012. The non-prosecution agreements emphasize Lao’s, Liao’s, and Salant’s timely and substantial cooperation, immediate willingness to accept responsibility for their misconduct, material assistance provided to the CFTC’s investigation of Citigroup, and the absence of a history of prior misconduct.
CFTC Director of Enforcement James McDonald says: “I am pleased to announce the first non-prosecution agreements entered into by the Commission, which I expect will be an important part of the Division’s cooperation program going forward. Non-prosecution agreements like these give the Division a powerful tool to reward extraordinary cooperation in the right cases, while providing individuals and organisations strong incentives to promptly accept responsibility for their wrongdoing and cooperate with the Division’s investigation.
“For many types of complex cases, there is simply no substitute for cooperating witnesses, who can tell the inside story of the fraud or misconduct at issue. Used properly, this type of first-hand knowledge can help the Division identify more culpable wrongdoers, hold them accountable, and further protect customers and the integrity of the markets. That’s exactly what happened here: These traders readily admitted their own wrongdoing, identified misconduct of others, and provided other valuable information, all of which expedited our investigation and strengthened our cases against the other wrongdoers.”
The non-prosecution agreements set forth how each trader employed a spoofing strategy that involved entering a large brief order (with the intent to cancel the large order before execution) on the opposite side of a smaller order (that each wanted to trade) in the same or a correlated market. Lao, Liao, and Salant used the spoofing strategy to get their smaller orders filled (and filled more quickly) at the prices they wanted. The agreements also detail numerous incidents of unlawful conduct at Citigroup, to which the traders admitted.
On 19 January, 2017, the CFTC announced a settlement with Citigroup for spoofing and related supervision failures and imposed a USD25 million civil monetary penalty. On 30 March, 2017, the CFTC announced settlements with former Citigroup traders Stephen Gola and Jonathan Brims for spoofing and imposed civil monetary penalties of USD350,000 and USD200,000, respectively, along with six-month trading bans.
