Traders Beware
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Started by metmike - May 21, 2020, 11:50 p.m.

Traders Beware: U.S. taps new tools to find fraud in volatile commodities market

The Justice Department fraud division is beefing up with the creation of a sub-unit specializing in combating commodities fraud overseen by Avi Perry, a trial attorney who has prosecuted high-profile cases involving trading powerhouse Tower Research Capital, Merrill Lynch Commodities Inc, and the ongoing JPMorgan probe, according to two sources.

The unit is also hiring a handful of additional trial attorneys, according to the sources and online job postings. A Justice Department spokesman said the agency intends to fill the positions “promptly”.

The unit is part of a broader Justice Department initiative to dramatically expand the scope of market manipulation the agency targets for criminal prosecutions, beyond traditional insider trading and futures manipulation into a range of asset classes, sources told Reuters.

The effort, if successful, raises the stakes for traders with potential jail-time, while banks, brokers and prop trading firms could face chunky fines and business curbs as the agency gets better at detecting potential misconduct across institutions.

The new-found expertise may also give the agencies an edge as they scrutinize extreme market volatility sparked by the novel coronavirus disruption, including last month’s historic oil price crash. The CFTC is reviewing how the U.S. crude oil benchmark fell below $0 a barrel for the first time ever.

“There is just a wealth of information there, which is going to give us years and years of cases to come, I would expect,” Robert Zink, chief of the Justice Department’s fraud section, a unit of the agency’s criminal division, said of the data in an interview.

The Justice Department’s commodities crackdown has recently targeted “spoofing,” whereby futures traders falsely create the impression of strong demand or supply and then capitalize upon the market reaction.

Congress identified spoofing as market manipulation following the 2008 financial crisis. But it wasn’t until years later, when Zink joined the team investigating the 2010 “Flash Crash” which briefly wiped nearly $1 trillion off U.S. stock markets, that the fraud division learned how widespread the practice was and decided to go after it.

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