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Regulation

Australian trader Jiongsheng Zhao pleads guilty to manipulating Chicago futures market, boosting prices with trades he cancelled milliseconds later

  • In one case, Jiongsheng Zhao placed an order for futures contracts valued at nearly US$19 million then cancelled it 0.059 seconds later
  • The ‘spoofing’ charge carries a maximum 10-year prison term
PUBLISHED : Friday, 28 December, 2018, 2:37am
UPDATED : Friday, 28 December, 2018, 7:26pm

An Australian commodities trader has pleaded guilty in a US federal court in Chicago to manipulating market prices by placing orders in the millions of dollars, then cancelling them within milliseconds so that he could sell smaller orders at a profit.

Jiongsheng “Jim” Zhao pleaded guilty on Wednesday to one count of spoofing in a deal with prosecutors, who say that from 2012 to 2016, the 31-year-old executed trades on the Chicago Mercantile Exchange online from Sydney.

Spoofing carries a maximum 10-year prison term, but Zhao’s lawyer, Theodore Poulos, told US District Judge John Tharp during Wednesday’s hearing that he and prosecutors planned to recommend a one-year sentence.

With time served in Australia awaiting extradition to the US, that means Zhao could only serve a few more months behind bars.

Zhao is due to be sentenced July 19. In the meantime, he will be allowed to return to Australia.

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Zhao was arrested in Australia in January in what the US Justice Department said was “the largest futures market criminal enforcement action” in the department’s history. At least seven others were charged around the same time.

But Poulos told the judge Wednesday that his client made a comparatively small profit, US$21,000, from illegal trades.

The Justice Department had highlighted Navinder Singh Sarao’s case along with Zhao’s.

Sarao made over US$12 million in market-manipulation schemes and helped trigger a 2010 “flash crash” from his parents’ suburban London home that wiped tens of billions of dollars off the value of US stocks. He pleaded guilty in 2016.

‘Flash crash’ trader whose bogus deals helped wipe US$1trillion off markets, pleads guilty in US

On one occasion, say prosecutors, Zhao placed an order for futures contracts valued at nearly US$19 million and cancelled it 0.059 seconds later. He then sold futures he actually bought for a few thousand dollars at a price his cancelled order helped to artificially inflate.