Trader convicted of spoofing gets 3-year prison sentence

Spoofing, which became illegal under the Dodd-Frank Act, carries a maximum of 10 years in prison. Photo / iStock

Michael Coscia, the first person convicted of spoofing after it was made a crime under the Dodd-Frank Act, was sentenced to three years in prison by a federal judge in Chicago, less than half the time sought by prosecutors.

Spoofing, which became illegal under the Dodd-Frank Act, carries a maximum of 10 years in prison. The practice typically consists of systematically placing orders without intending to execute them to trick the market into thinking there's interest in buying or selling that doesn't actually exist.

Coscia, 54, was convicted by a jury in November of manipulating futures markets by placing unusually large orders he didn't intend to execute and then filling smaller trades on the opposite side.

Prosecutors said it was a bait and switch scheme that yielded Coscia, the head of Panther Energy Trading, more than $1 million over 2 1/2 months in 2011. The scheme resulted in losses to high frequency trading houses that were placing and executing orders at the same time.

Prosecutors had sought a term as long as seven years and three months. Coscia's lawyers, who argued for probation, said sentencing guidelines allowed for a term of only four to 10 months.

His three-year prison term is to be followed by two years of supervised release.

Coscia's sentencing follows a ruling Tuesday in a spoofing lawsuit brought by the Commodity Futures Trading Commission allowing a defendant to continue trading before a trial set for January.

Igor Oystacher, of 3Red Trading, was accused by the CFTC of continuing illegal trades even after it sued him.

A jury deliberated for one hour before finding Coscia guilty of six spoofing counts and six fraud counts. He was the first person tried under a provision of the 2010 Dodd-Frank Act that made it illegal to manipulate prices by placing orders without intending to execute them.

Testimony during the trial showed that Coscia, like many high frequency traders, used an algorithm to place, cancel and execute orders. Coscia testified that he intended to execute all of his orders at the time he placed them.

He said he wasn't aware of the provision of the Dodd-Frank Act and his lawyers argued in court filings that the law was unconstitutional.

Prosecutors presented trading data from the Chicago Mercantile Exchange and the ICE Futures Europe exchange showing that Coscia placed orders that were much larger than any others trading at the same time and also that he canceled those orders much more frequently.

During the trial, prosecutors focused on six transactions in the gold, euro, soybean meal, soybean oil, British pound, and copper futures markets. In total, these trades resulted in a profit of $1,070, according to testimony. Coscia conducted thousands of such trades, prosecutors told jurors.