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United States

US accuses Chinese trader of orchestrating a US$60 million fraud through futures spoofing

Justice Department says accused and two others distorted the market by placing large fake trading orders they never intended to execute

PUBLISHED : Saturday, 13 October, 2018, 8:53am
UPDATED : Saturday, 13 October, 2018, 10:33am

Three commodities traders were charged by the US Justice Department with orchestrating a US$60 million fraud that involved spoofing and conspiring to manipulate futures contracts, according to prosecutors and court filings in Houston.

Yuchun “Bruce” Mao, a 39-year-old Chinese national, is accused of working with two other traders at his firm in a scheme to rig the purchase and sale of futures contracts on the Chicago Mercantile Exchange and the Chicago Board of Trade, according to an indictment made public on Friday.

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A bench warrant for Mao’s arrest was issued on Wednesday by a federal judge, according to court documents.

The two others charged in the alleged scheme, Kamaldeep Gandhi, 36, of Chicago, and Krishna Mohan, 33, of New York, were preparing to plead guilty to related charges, prosecutors said. Gandhi has accepted a permanent ban from futures trading and is cooperating with an investigation by the Commodity Futures Trading Commission, the agency said.

These individuals engaged in a sophisticated scheme to distort the futures market for their own advantage
Brian Benczkowski, Assistant Attorney General

The three traders worked for the same trading firm at the time of the alleged misconduct, prosecutors said without naming the firm.

A registration with the Financial Industry Regulatory Authority, the industry self-regulator, by someone with the same name shows that Mao was with Tower Research Capital at the time of the alleged misconduct. The Finra filing also notes that Mao disclosed an investigation of him by the Chicago exchange for market manipulation, initiated in May 2014.

Mao did not respond to a message sent through social media. Tower Research Capital did not respond to an email seeking comment.

“These individuals engaged in a sophisticated scheme to distort the futures market for their own advantage by placing large ‘spoofed’ trading orders that they never intended to execute,” Assistant Attorney General Brian Benczkowski said.

Watchdog calls on CME to beef up ‘spoofing’ detection

The charges against the trio are part of a broad US crackdown on spoofing, a tactic in which traders place orders without intending to execute them to try to move prices in their favour. Earlier this year, the Justice Department announced criminal charges against eight individuals, seven of whom worked at financial institutions and commodities-trading firms.

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According to prosecutors, Mao’s alleged spoofing scheme ran from March 2012 until March 2014 and involved dozens of fraudulent orders that were cancelled before execution. The victim of the alleged manipulation is an unidentified quantitative finance company with offices in Houston, according to the indictment.