Report Spoofing to SEC for Whistleblower Attributions

Spoofing is a form of market manipulation in which traders artificially inflate supply and demand of assets in order to increase profits. Traders engaged in spoofing place a large number of orders to buy or sell a particular stock or asset with no intention of following the orders. This deceptive trading practice leads other market participants to mistakenly believe that there is pressure to act on that asset and spoofs other participants to place orders at artificially altered prices.

Spoofing affects prices because the artificial increase in activity on the buy or sell side of an asset creates the perception that there is a shift in the number of investors willing to buy or sell. Spoofers place false bids or offers with the intention of canceling before fulfilling so that they can follow up on real orders at a more favorable price. Often, spoofers use automated trading and algorithms to achieve their goals.

The Dodd-Frank Act of 2010 prohibits spoofing, which defines it as bidding or offering with the intent to cancel the bid or offer before execution. 7 USC 6c(a)(5)(C). Spoofing also violates SEC rules, including the market manipulation provisions of Section 9(a)(2) of the Securities Exchange Act of 1934.

Falsifying enforcement actions

In the matter of JP Morgan Securities LLC

On September 29, 2020, the U.S. Securities and Exchange Commission (SEC)announcedcharges against JP Morgan Securities LLC, a broker-dealer subsidiary of JPMorgan Chase & Co., for fraudulently engaged in manipulative trading of US Treasury bills. According to the SECsto order, certain traders on the JP Morgan Securities Treasuries trading desk placed real orders to buy or sell a particular Treasury security, while almost simultaneously placing spoofing orders, which the traders had no intention of executing, for the same series. Treasury securities on the other side of the market. The spoofing orders were intended to create a false appearance of buying or selling interest, which would cause other market participants to trade against the real orders at prices more favorable to JP Morgan Securities than JP Morgan Securities could otherwise have obtained.

JPMorgan Chase & Co. agreed to pay a $10 million disgorgement and a $25 million civil fine to settle the SEC action. In addition, the United States Department of Justice (DOJ) and the United States Commodity Futures Trading Commission (CFTC) have filed parallel proceedings against JPMorgan Chase & Co. and certain of its affiliates for manipulative trading. In total, the three actions resulted in monetary sanctions against JPMorgan Chase & Co. totaling $920 million, including amounts for criminal restitution, forfeiture, restitution, fines and fines.

United States of America v. Edward Bases and John Pacilio

On August 5, 2021, a federal jury convicted Edward Bases and John Pacilio, two former Merrill Lynch traders, for their involvement in a multi-year fraud scheme to manipulate the precious metals market. According to the United States Department of Justice (DOJ)press releaseannouncing the move, the two traders fraudulently pushed market prices up or down by routinely placing large spoof orders on the precious metals futures markets they had no intention of filling.

After manipulating the market, Bases and Pacilio traded at favorable prices for their own gain and to the detriment of other traders. the DOJsChargedetailed how Bases and Pacilio discussed their intent to push the market through spoofing in electronic chat conversations.

In the matter of Nicholas Mejia Scrivener

The SEC recentlychargeda California day trader with spoofing, where he placed multiple orders to buy or sell a stock, sometimes at multiple price levels that he had no intention of executing. The SEC claimed that the purpose of the false orders was to create the appearance of inflated market interest and induce other actors to trade at artificial prices. The trader then completed real orders at manipulated prices and withdrew the fake orders. The SEC found that the trader’s conduct violated Section 9(a)(2) of the Exchange Act of 1934, and the trader complied by agreeing to a cease and desist order and payment in disgorgement, interest and a civil fine .

SEC and CFTC Whistleblower Awards for Reporting Spoofing

Under the SEC Whistleblower Program and CFTC Whistleblower Program, a whistleblower who reports spoofing to the SEC or CFTC may be eligible for a reward. These practices may include spoofing:

• Placing buy or sell orders for a stock or asset with no intention of executing it;

• Attempts to entice other traders to trade on a particular stock or asset in order to manipulate market prices and profitability;

• Creating a false appearance of market interest to manipulate the price of a stock or asset;

• Placing deceptively large buy or sell orders to withdraw those orders once smaller, real orders are filled on the other side of the market;

• Using false orders to favorably influence the prices of a stock or asset (to raise market prices if you intend to sell or to lower market prices if you intend to buy) so that more ideal prices can be obtained can receive for a real order.

If information about whistleblowers leads the SEC or CFTC to a successful enforcement action with total monetary penalties exceeding $1 million, a whistleblower could be awarded a reward of between 10 and 30 percent of the total monetary penalties collected.

Since 2012, the SEC has almost$1 billion to whistleblowersand the CFTC has about$123 million to whistleblowers. The largest SEC whistleblower awards to date are $114 million and $50 million. The largest CFTC whistleblower awards to date are $45 million and $30 million.

Report Spoofing and Earn a Whistleblower Award

To report spoofing and qualify for a whistleblower scheme, the SEC and CFTC require whistleblowers or their attorneys to report their tips online through their Tip, Complaint, or Referral Portal or by mail/fax form TCR to the whistleblower agencies. Before submitting a tip, whistleblowers should consider scheduling a confidential interview with a whistleblower attorney.

The road to receiving an award is long and complex. Experienced whistleblower attorneys can critically guide whistleblowers through this process to increase the chances of not only getting their rewards, but also maximizing them.

SEC and CFTC Whistleblower Protection for Spoofing Disclosures

The SEC and CFTC whistleblower programs protect the confidentiality of whistleblowers and do not disclose information that could directly or indirectly reveal a whistleblower’s identity. In addition, a whistleblower may file an anonymous tip with the SEC and CFTC, if represented by counsel. In certain circumstances, a whistleblower may remain anonymous, even to the SEC and CFTC, until an award is established. However, even at the time of grant, a whistleblower identity is not made public.