Spoofing-Case Stumbles by Prosecutors May Not Save Ex-UBS Trader


• Testimony begins April 16 in Andre Flotron’s conspiracy case
• Flotron says his trading strategies were legitimate and legal


U.S. prosecutors stumbled in bringing a “spoofing” case against a former UBS Group AG precious metals trader, but in the end it might not matter.

The government is prosecuting Andre Flotron in Connecticut, where the Swiss trader once worked, and not in Chicago, home to commodities markets and trading firms. The judge threw out six of the seven charges, ruling they were brought in the wrong venue and leaving just a conspiracy count. He also barred prosecutors from moving the case to Chicago, where the trades were executed, and blocked them from showing that Flotron engaged in front-running, another form of illegal trading.

Yet prosecutors retain the upper hand, market regulation experts say. Spoofing is a relatively easy form of manipulation to prove, given that it often relies on algorithmic trading, and large amounts of data are generated, they said. Flotron’s used both algorithms and manual trades so his case may be more complicated — but just barely.

“It’s actually not terribly different at the end of the day,” said Greg Kaufman, a Washington-based lawyer who specializes in commodities-trading enforcement.

Flotron goes on trial in New Haven on April 16 on charges of conspiring to commit commodities fraud by manipulating prices of futures contracts for gold, silver and other metals using “trick orders” — otherwise known as spoofing. Such orders are placed with no intention of execution, and canceled soon after, to push the price of contracts up or down. The practice was outlawed by the 2010 Dodd-Frank Act.

Flotron, 54, is accused of scheming with other traders over five years starting in July 2008. He worked for UBS in his native Switzerland and Connecticut before his arrest in 2017 while visiting his girlfriend in New Jersey. He’s no longer with the bank.

The trial is the second in the U.S. over criminal spoofing, following the conviction of Panther Energy Trading LLC owner Michael Coscia in Chicago in 2015. “Flash Crash” trader Navinder Singh Sarao and former Deutsche Bank AG trader David Liew pleaded guilty. Flotron’s jury was selected last week.

Spoofing is “a relatively new phenomenon, since it’s basically related to electronic markets, particularly as they become more high-frequency oriented,” said Craig Pirrong, a University of Houston finance professor. “People see it’s going on. If you can look at the data, you can see it, and you can ferret it out.”

Critics say the statute is too vague and captures a vast amount of permissible trading activity in which orders are canceled. An appeals court in Chicago last year disagreed, rejecting a challenge from Coscia, who ran a high-speed trading firm.

Coscia’s case involved just automated trading. In Flotron’s, prosecutors will likely have to show intent through “the pattern of trading, through market data and actual examples,” rather than relying on testimony that a computer program was written for that purpose, said Kaufman, who isn’t involved in the case.

With a single conspiracy count against Flotron, prosecutors must prove he joined in a plot to manipulate futures contracts. The government’s cooperating witness, who worked briefly at the bank’s Stamford office, is expected to testify that Flotron trained him in spoofing during the more junior employee’s first week in July 2008.

“This is not the Coscia case. This is completely different,” Marc Mukasey, Flotron’s lawyer, said in an email. “We’re looking forward to trying the case and a full exoneration for Andre.”

Good Faith

Mukasey argued in court filings last week that Flotron’s “trading strategies were legitimate, market-accepted strategies, and that he acted in good faith.”

The defense has scored some early victories. The judge wouldn’t allow a new case to be brought in Chicago because it would infringe Flotron’s right to a speedy trial and barred prosecutors from introducing evidence of front-running because it was unrelated to the other allegations.

Flotron’s arrest came on the heels of a U.S. probe into whether bank traders conspired to rig interest-rate benchmarks and manipulate currency exchanges starting in 2008. That investigation, which led to guilty pleas and billions of dollars in payouts by some of the world’s biggest banks, led to scrutiny of whether metals traders were spoofing.

The case is U.S. v. Flotron, 3:17-cr-00220, U.S. District Court, District of Connecticut (New Haven).

To contact the reporter on this story:
Christie Smythe in Brooklyn at csmythe1@bloomberg.net
To contact the editors responsible for this story:
David Glovin at dglovin@bloomberg.net